Liquidating subsidiary ordinary or capital
Liquidating subsidiary ordinary or capital - cochin dating girls
Notably, section 165(g)(3) allows for the recognition of an ordinary rather than a capital loss on the liquidation or disposition of a worthless subsidiary.
The takeaway for this analysis is that the ULR could apply to the disposition of any subsidiary out of a consolidated group and must be considered prior to claiming the worthless stock deduction.
Sections 1.332-2(b) and (e), Example 2; Commissioner v.
A corporation converted its wholly owned subsidiary to a disregarded entity via a check-the-box election. The parent corporation sought a worthless stock loss under Code §165(g)(1).
When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.
This is usually the case in bankruptcy liquidations.
At issue is Code §332 which will not allow a parent corporation shareholder to recognize gain or loss on liquidating distributions of an 80%-or-more owned subsidiary.
The corporation sought a private letter ruling to the effect that Code §332 did not apply. Theory does not always apply when dealing with the IRS.As a result, to the extent a subsidiary is insolvent at the time of liquidation, section 165(g) rather than section 332 applies. Liquidation can occur in a variety of ways, including through methods that do not result in the formal dissolution or liquidation of the subsidiary for legal purposes. When considering options for dealing with an insolvent subsidiary’s business, section 165(g)(3) provides an opportunity to recognize an ordinary deduction on the investment in the subsidiary that could offset income generated by other profitable activities. However, when determining whether an ordinary deduction is allowable, close attention must be paid to the requirements of section 165(g)(3), the treatment of intercompany debt, and, in some cases, the consolidated return rules. Opportunities to recognize a loss are likely to occur upon the winding down of the subsidiary’s business or where its business is of interest to a buyer, notwithstanding, that liabilities (including intercompany liabilities) exceed the value of assets.