When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.This is usually the case in bankruptcy liquidations.
THE IRS SAYS DISTRIBUTIONS of customer-based intangibles to shareholders are taxable.
One exception applies with respect to an asset that was used by the U. One key carve-out to the trade or business exception is that it does not apply to the distribution of rights in intangibles, a rule that is often overlooked by taxpayers (or ignored because they are in denial as to the existence of any intangibles). 108-192), Congress was concerned that foreign corporations were establishing U. holding companies to receive tax-free dividends from the underlying U. However, rather than going after the distributing corporation and requiring it to pick up gain on the liquidating distribution, §332(d) goes after the distributee by treating the distribution as a dividend distribution subject to withholding tax.