Tax implications of liquidating
In addition, Subchapter S contains the rules concerning the pass-through character of income, gain and loss.Consequently, tax professionals advising the corporation and its shareholders must be able to calculate the tax impact for shareholders, who ultimately bear the tax burden of the liquidation.
In a bankruptcy, a liquidating trust may be formed whereby certain assets are placed in a trust for the benefit of creditors who may have certain claims against those assets.
If you have a traditional IRA without any non-deductible contributions, the entire amount is taxable.
If you take a qualified Roth IRA distribution, the entire amount is tax-free.
In some cases, there may be some corporate level problems, such as the built-in gains taxes.
Tax advisers must be aware of the Subchapter C rules, especially those concerned with gain or loss recognition on the distribution.