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The company would send me a 1099 tax form filled "only" with Col-8 for Cash distribution / Liquidation. These distributions are, at least in part, one form of a return of capital. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9, in your case they were cash in box 8.

Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock.

At issue is whether the company’s status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that “…where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved…” In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.

Eventually, company officers learned of their plight and reincorporated the business in the same state.

When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.

As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.

Witness the situation described in recent letter from the Internal Revenue Service (LTR 200806006, November 7, 2007), which addresses a seeming anomaly related to the tax code.

The anomaly is corporate dissolution without liquidation.

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