Sale of S Corporation Stock Pursuant to IRC 336(e) Election with Installment - Spidell

Sale of S Corporation Stock Pursuant to IRC 336(e) Election with Installment

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Message Board Sale of S Corporation Stock Pursuant to IRC 336(e) Election with Installment

This topic contains 1 reply, has 2 voices, and was last updated by Lynn Freer 3 months, 2 weeks ago.

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  • #174924
    Helen Huntoon Cowden
    Participant

    In the liquidation of an S Corporation pursuant to IRC 336(e) election, the installment note is distributed to the shareholder for federal purposes and no gain is reported on the distribution of the note. California conforms to IRC 336(e) for taxation of corporate liquidations as well as 331 for the shareholder tax treatment (RTC 24451 and 24461).

    If California conforms to the federal treatment then it would appear the distribution of the installment note does not trigger California corporate level tax of 1.5% on the distribution of the note. We cannot find direct support or cases that the gain on the distribution of the installment note on liquidation (453(b)(a)) is not subject to CA corporate tax.

  • #174992
    Lynn Freer
    Participant

    From our Guide to Forming and Dissolving a Corporation

    For purposes of California’s 1.5% tax on S corporations, the installment sale gain must be
    accelerated into the S corporation’s final return when an S corporation liquidates. (R&TC §24672)
    The shareholder will continue to report the gain as he or she receives payments.