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Corporate shareholders may prefer that the distribution be treated as a dividend, allowing the corporation to take advantage of the special dividends-received deduction under Code § 243 (which allows the dividends to only be taxed once at the corporate level).
More dividend distribution means more earnings for the stockholders and would attract more potential investors.A corporation may liquidate by (a) paying off creditors and distributing the remaining assets in kind to the shareholders or (b) selling assets, paying off creditors, and distributing the remaining cash to the shareholders. If the corporation distributes the assets to the shareholders in kind pursuant to a plan of liquidation, it is treated as having sold the assets to the shareholder for fair market value. If the corporation instead sells the assets and distributes the remaining cash to the shareholder, it is taxed on the sale. Likewise, the shareholder is treated as though the shareholders sold their stock to the corporation for the value of the assets or cash received. The shareholder’s basis in property received pursuant to a plan of liquidation is the fair market value of the property at the time of the distribution.  I. But that section only covers gain on distributions of appreciated property. If the corporation distributes property that has depreciated (i.e., property with a built-in loss), Code § 311(b) does not apply.