Subscribe Get timely updates about taxation, accounting, succession planning, and other issues that are unique to farmers and agribusiness processors.Find out about major agribusiness events and how to comply with new laws that affect your business.We've assumed a tax rate of 25% in this case study.Of course, tax rates vary, so you can insert your own in the attached Excel calculator.If you donate the shoe, the IRS will allow you to claim a tax benefit at the end of the tax year. Rather, you have less income to report, and therefore fewer taxes to pay on your smaller gross profit.Also, there's no immediate boost to your bottom line since the tax benefit is not realized until the end of the tax season.
When a shareholder receives a distribution in complete liquidation of a corporation, the distribution is treated as full payment in exchange for stock. This is a special treatment for liquidating distributions, so the transaction is treated as if the shareholder sold the shares in exchange for the liquidating distribution. Then, after paying small liabilities and formally dissolving, it paid the remaining cash to the investors. If you determine that a PFIC is liquidating, treat each liquidating distribution as payment in exchange for the shares.
Then, after paying miscellaneous, small debts and winding up its business, it distributed the remainder of its cash to the investors. Passive foreign investment company (PFIC) is a special classification for foreign corporations under the Internal Revenue Code.
It sold all its investments, paid its major liabilities, then paid most of the cash proceeds to its investors. This post describes why both the first and second distributions are treated as proceeds from the sale of the investor’s PFIC shares, and why only the gain over investment is subject to tax.
This is a classic case of liquidation, and there is little question that both the initial large cash distribution and the following remainder cash distribution would be liquidating distributions had the corporation been a normal corporation rather than a PFIC. When the payment results in a gain according to the normal methods of calculating gain, you recognize gain and calculate tax on the gain under PFIC rules on the date of distribution.
The question is whether the PFIC rules override the liquidating distribution rules. In our scenario, it is clear that the PFIC is liquidating.