Liquidating dividend equity method

This concept is different than regular dividends, which are paid from the company's profits or retained earnings.

This difference has income tax implications to shareholders.

Often a liquidation is overseen by a receiver, or a chosen representative of the shareholders, who oversees the process to ensure that it runs smoothly and that the corporation maximizes the return from the sale of its assets.

The purpose of these types of mergers is to minimize tax repercussion, so if only stock is exchanged, no gain or loss will be recognized by either party.The capital gain is treated as long-term or short-term depending on whether you owned the shares for longer than a year.If you purchased the stock at different times, divide the dividends into short-term and long-term proportionally, based on when each block of stock was acquired.Keep your tax records for at least seven years, to protect against the possibility of future audits.John Cromwell specializes in financial, legal and small business issues.

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