THE IRS SAYS DISTRIBUTIONS of customer-based intangibles to shareholders are taxable.
A: The initial liquidating distribution, along with the operating distributions received in 2016, will be reported to shareholders on their 2016 Form 1099-DIV, which we expect to be mailed on or before January 31, 2017.
Q: What are the tax implications for Box 8, Cash Liquidation Distributions for Taxable Accounts (such as individual or joint tenant type accounts)?
Trade secrets, special processes, patents and proprietary information are among an employer’s protectable interests, but how noncompete provisions create an employer property right isn’t clear.
THE PRACTITIONER SHOULD ADVISE the client to terminate employment and noncompete agreements with shareholders before liquidation.
The Senate Report explained that the 5% Exception was meant to remove “from treatment as effectively connected income for a foreign investor a capital gain distribution from a REIT” and justified it as a means to “provide greater conformity in the tax consequences of REIT distributions and other corporate stock distributions.” The use of the language “capital gain distribution from a REIT” would suggest that the Senate Report was referring to capital gains dividends, rather than liquidating distributions and that the distributions to which the 5% Exception (and, thus, Code Sec. 857(b)(3)(F), enacted at the same time as the 5% Exception, which recasts distributions subject to the 5% Exception as ordinary dividends, applies only to the amount which would be considered capital gain dividends (and not liquidating distributions). 897(h)(1) is applied in accordance with the Notice, a non-U. shareholder to which the 5% Exception applied on a liquidating distribution would not be subject to FIRPTA tax nor would the distribution be subject to withholding as an ordinary dividend under Code Sec. This disparity in treatment would suggest again that Congress did not intend Code Sec. To not treat liquidating distributions as ordinary dividend income subject to Code Sec. Such inconsistencies would not exist if liquidating distributions from a DCR were treated consistently with the provisions of Subchapter C of the Code.
897(h)(1)) applied were not liquidating distributions. 897(h)(1) also fosters the goal of greater conformity in the tax consequences of REIT distributions and other corporate stock dividends stated under the Senate Report. shareholder could be subject to branch profits tax on liquidating distributions. Although liquidating distributions to domestic shareholders are generally treated as a sale of stock and are exempt from FIRPTA taxation, as discussed above, the same distributions to non-U.
A: No, in addition to the initial liquidating distribution, we expect to make one or more additional liquidating distributions in First Quarter 2017.
Q: How will the initial liquidating distribution be reported for tax purposes?
Without such an agreement, client goodwill attributable to the personal characteristics of a shareholder isn’t a property right belonging to, or transferable by, a firm.
A NONCOMPETE COVENANT, to be enforceable, must reasonably reflect an employer’s protectable interest in both the nature and the scope of the restraint on the employee.
The questions and answers are based on certain assumptions that may not be accurate.