Shareholders should consult their Forms 1099-DIV as provided previously for each year for dollar amounts, and shareholders must contact their tax advisors.The following Q&A and Cost Basis Calculator are designed to help you understand the tax implications of the liquidating distribution of $.30 per share paid to shareholders in April 2017 and any remaining liquidating distributions. 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.
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.We need to know whether the 2 distributions from the PFIC undergoing liquidation is subject to the rules of distribution or gain. It is possible for a corporation to make a series of liquidating distributions, each of which is treated as a payment in exchange for the shares. As long as the corporation is in a state of liquidation, each of the distributions during the state of liquidation is a liquidating distribution under section 331. Whether a corporation is in a state of liquidation is a question of fact. The PFIC sold all its investments, paid its major liabilities, then distributed most of the cash to its investors.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.Because our investor lost money on the investment, I assume the payment is still less than his adjusted basis in the PFIC shares–after the reduction from the first payment.Fortunately, our investor does not need to pay tax on the losses from the PFIC liquidation.A: No, in addition to the liquidating distribution, we expect to make one more liquidating distribution in 2018. Q: How will the liquidating distribution be reported for tax purposes?A: The liquidating distribution received in 2017, will be reported to shareholders on their 2017 Form 1099-DIV. Q: What are the tax implications for Box 8, Cash Liquidation Distributions for Taxable Accounts (such as individual or joint tenant type accounts)?The excess distribution is subject to tax, even if it is entirely return of basis. Exactly how the tax is calculated is beyond the scope of this post, but an important item to note is that if a distribution is taxed as an excess distribution, then even return of basis, which is normally tax-exempt, is taxable.When a shareholder realizes a gain from disposing of a PFIC share, the entire gain is taxed as excess distribution. But the way we calculate gain follows the normal rules: Gain equals amount realized minus adjusted basis. Thus, if a distribution is taxed as a sale of a PFIC, then the return of basis is not taxable. Thus, a portion of the amount realized equal to the adjusted basis (the return of basis) is not gain and is not included in income.Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock. Q: What are the tax implications for Box 8, Cash Liquidation Distributions for Non-Taxable Accounts (such as IRAs)?A: As long as the cash remains within the Qualified Account and is not distributed out of the Qualified account, receipt of Cash Liquidation Distributions by such an account generally will not have any immediate tax implications. Q: How do I calculate the cost basis of the investment?