Liquidating subsidiary ordinary or capital

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Instead, the liability reduces the amount realized by the shareholder.

2003-125, 2003-2 CB 1243, holds that a liquidated subsidiary’s stock is demonstrably worthless because its parent corporation receives no payment for its equity investment on account of the subsidiary’s insolvency.

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331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).

The shareholders generally recognize gain (or loss) in an amount equal to the difference between the fair market value (FMV) of the assets received (whether they are cash, other property, or both) and the adjusted basis of the stock surrendered.

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