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Observation: Distributions in partial liquidation of a corporation must be made in the year the plan is adopted or in the subsequent year. The liquidation should be completed as quickly as possible to ensure sale or exchange treatment (as opposed to possible dividend treatment if the corporation has E&P) for the liquidating distributions. Finally, it may be desirable to avoid a lengthy liquidation period to minimize exposure to double taxation and to avoid Sec. When a shareholder holds several blocks of the same class of stock (acquired at different times and at different prices) and several distributions are made in complete liquidation, each distribution is allocated among the different blocks in proportion to the number of shares in each block (Rev. Generally, a loss cannot be recognized until the tax year in which the final distribution is received. The normal period for assessment of tax is three years from the date the return is filed.

No such requirement exists for distributions made in a complete liquidation of a corporation. The IRS indicates it will normally not issue a ruling or determination letter on the tax effects of a corporate liquidation accomplished through a series of distributions made over a period in excess of three years from adoption of the plan of liquidation (Rev. 541 personal holding corporation (PHC) status for the corporation after the assets are sold. However, there have been some exceptions to this rule (e.g., in the year the last substantial distribution was made because the amount of the final distribution was then determinable with reasonable certainty) (Rev. A corporation can accelerate the period in which the IRS can assess tax by requesting a prompt assessment of tax (Sec. Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), is used to request a prompt assessment.

If the stock is a capital asset in the hands of the shareholder, the shareholder has a capital gain or loss on the exchange.

The maximum tax rate for both long-term capital gains (realized after May 5, 2003, and before 2013) and dividends (for tax years beginning after 2002 and before 2013) is 15%.

331 when they receive the liquidation proceeds in exchange for their stock.