Tax treatment liquidating distribution pfic
The holding period of the pledged stock is not adjusted to reflect the disposition because the full amount of the gain inherent in the stock was not recognized (see § 1.1291-1(h)(5)). In addition, on August 12, 1996, X borrows an additional ,000 (for a total outstanding loan balance on that day of 0,000).
The value of the FC stock immediately before the additional loan is 0,000.
Take this percentage times your adjusted cost basis to compute your return of capital. To be eligible for this special tax treatment, a partial liquidation must be paid to a non-corporate taxpayer, must not be essentially equivalent to a dividend, must be made pursuant to a plan of liquidation, and must be paid by the end of the next tax year after the plan is adopted.
—Any direct or indirect disposition of stock of a section 1291 fund within the meaning of paragraphs (b), (c), (d), and (e) of this section is taxable to the extent provided in section 1291, this section, and § 1.1291-6.
X’s basis in the FC stock is increased by ,000, the amount of gain recognized on the deemed disposition.X’s basis in its FC stock is increased by ,000, the amount of gain recognized.X’s holding period in the FC stock for section 1291 purposes is treated as beginning on the day after the effective date of the second borrowing (see § 1.1291-1(h)(5)).Payments received are first recorded as return of capital and then any payments in excess of your adjusted cost basis are capital gains.
After the final distribution has been made, if all your cost basis has not been paid back, at this point you can claim a capital loss for the remainder.
Pursuant to § 1.1291-3(d)(4), there is a disposition within the meaning of § 1.1291-3(d)(1) to the extent the value of the FC stock secures additional indebtedness.