Tax consequences of liquidating a partnership
The shareholder, who treats the fair market value of the property as received in exchange for his or her stock, also recognizes a gain (IRC section 331(a)).
The critical issue for tax planning is whether the assets distributed are considered property under IRC section 336 and whether the corporation owns them.
There’s no doubt that a firm can distribute tangible property to its shareholders as a dividend, whether it liquidates or not.
But a question arises when it distributes to its shareholders all its assets—both tangible and intangible—and ceases doing business: Is there a taxable distribution of its intangible goodwill? According to the Tax Court, on the other hand, the answer is that it depends.
THE PRACTITIONER SHOULD ADVISE the client to terminate employment and noncompete agreements with shareholders before liquidation.In a professional practice, tangible property such as office equipment, furniture and fixtures makes up a small portion of a firm’s total value.