Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-3-8 - RECOGNITION OF GAIN OR LOSS
Section 810-3-8-.10 - Gain Or Loss On Certain Liquidations
Universal Citation: AL Admin Code R 810-3-8-.10
Current through Register Vol. 42, No. 11, August 30, 2024
(1) For transactions after December 31, 1984 and before August 1, 1986 -
(a) If, within
the twelve (12) month period beginning on the date on which a corporation
adopts a plan of complete liquidation, all of the assets of the corporation are
distributed in complete liquidation, (except for assets retained to meet
claims), then no gain or loss shall be recognized to such corporation from the
sale or exchange of property within such twelve (12) month period.
1. For the purposes of this subparagraph
(1)(a), the term "property" does not include -
(i) stock in trade of the corporation, or
other property of a kind which would properly be included in the inventory of
the corporation if on hand at the close of the taxable year, and property held
by the corporation primarily for sales to customers in the ordinary course of
its trade or business.
(ii)
installment obligations acquired in respect to the sale or exchange (without
regard to whether such sale or exchange occurred before, on, or after the date
of the adoption of the plan referred to in this subparagraph (1)(a)), of stock
in trade or other property described in subparagraph (1)(a)1.(i)
above.
(iii) installment
obligations acquired in respect of property (other than property described in
subparagraph (1)(a)1.(ii) above) sold or exchanged before the date of the
adoption of such plan of liquidation.
2. Notwithstanding subparagraph (1)(a)1.
above, if substantially all of the property described in subparagraph
(1)(a)1.(i) above, which is attributable to a trade or business of the
corporation is sold or exchanged to one person in one transaction, then for
purposes of this subparagraph (1)(a), the term "property" includes such
property so sold or exchanged and installment obligations acquired in respect
of such sale or exchange.
(b) Subparagraph (1)(a) above does not apply
to the following liquidations described in this subparagraph (1)(b):
1. Any sale or exchange made by a collapsible
corporation (as defined in 26 U.S.C. §
341(b)).
2. Any sale or exchange made by a corporation
following the adoption of a plan of complete liquidation if §
40-18-8(k),
Code of Ala. 1975, (relating to election as to
recognition of gain in certain liquidations as defined in 26 U.S.C. §
333)
applies with respect to such liquidation.
3. In the case of any sale or exchange
following the adoption of a plan of liquidation if §
40-18-8(i) (relating to liquidation of subsidiaries pursuant to 26 U.S.C. §
332)
applies to such liquidation.
4.
This subparagraph (1)(b) shall not apply to a sale or exchange by a corporation
(referred to herein as the "selling corporation"), if -
(i) within the twelve (12) month period
beginning on the date of the adoption of a plan of complete liquidation by the
selling corporation, the selling corporation and each distributee corporation
is completely liquidated, and
(ii)
none of the complete liquidations are liquidations to which §
40-18-8(k) (and 26 U.S.C. §
333) applies.
(I) The
term "distributee corporation" means a corporation in the chain of includable
corporations to which the selling corporation or a corporation above the
selling corporation in such chain makes a distribution in complete liquidation
within the twelve (12) month period referred to in subparagraph
(1)(a).
(II) The term "chain of
includable corporations" includes, in the case of any distribution, any
corporation which (at the time of such distribution) is in a chain of
includable corporations for purposes of Reg.
810-3-6-.02(1)(k)7.(x).
Such term includes, where appropriate, the common parent corporation.
(c) If a
corporation adopts a plan of complete liquidation, and if subparagraph (1)(a)
of this rule does not apply to sales or exchanges of property by such
corporation solely by reason of the application of subparagraph (1)(b)4.(i) of
this rule (relating to liquidations of subsidiaries under §
40-18-8(i) and 26 U.S.C. §
332), then for the first taxable year of any shareholder
(other than a corporation which meets the eighty percent (80%) stock ownership
requirement in paragraph (1) of this rule), in which he receives a distribution
in complete liquidation -
1. the amount
realized by such shareholder on the distribution shall be increased by his
proportionate share of the amount by which the tax imposed by Chapter 18 of
Title 40, Code of Ala. 1975, on such corporation would
have been reduced if subparagraph (1)(b)4.(ii) had not been applicable,
and
2. for purposes of Chapter 18
of Title 40, such shareholder shall be deemed to have paid, on the last day
prescribed by law for the payment of the tax imposed by said Chapter 18 on such
shareholder, an amount of tax equal to the amount of the increase described in
subparagraph (1)(c)1. above.
(d) If there is an involuntary conversion
(within the meaning of §
40-18-8(d) and 26 U.S.C. §
1033), and there is a complete liquidation of such
corporation which qualifies under subparagraph (1)(a) above of this rule -
1. the disposition of the converted property
occurs within the sixty (60) day period which ends on the last day before the
first day of the twelve (12) month period, and
2. such corporation elects the application of
§
40-18-8(j) and this rule in accordance with regulations prescribed by the United States
Secretary of the Treasury, then for purposes of §
40-18-8(j) and this rule, such disposition shall be treated as a sale or exchange
occurring within the twelve (12) month period specified in paragraph (1)
above.
(e) In the case
of a corporation inventorying goods under the LIFO (last-in, first-out) method,
subparagraph (1)(a) above shall apply to gain from the sale or exchange of
inventory assets only to the extent that such gain exceeds the LIFO recapture
amount with respect to such assets.
1. The
term "LIFO recapture amount", as used in this subparagraph (1)(e), means the
amount, if any, by which the inventory amount of the inventory assets under the
FIFO (first-in, first-out) method exceeds the inventory amount of such assets
under the LIFO method.
(f) If a corporation completely liquidates
pursuant to a plan of complete liquidation adopted in a federal bankruptcy case
under Title 11, U.S.C., or a receivership, foreclosure, or similar proceeding
in a federal or state court, then -
1. for
the purposes of subparagraph (1)(a) above, the term "property" shall not
include any item acquired on or after the date of the adoption of the plan of
complete liquidation if such item is not property within the meaning of
subparagraph (1)(b)2. above, and
2.
subparagraph (1)(a) above shall apply to sales and exchanges by the corporation
of property within the period beginning on the date of the adoption of the plan
and ending on the date of the termination of the case in federal or state
court.
Authors: Verlon R. Frost, Jeff Taylor
Statutory Authority: Code of Ala. 1975, § 40-18-8.
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