In accounting why liquidating is declaired
A corporation issues these dividends if it plans to terminate its business or if it plans to merge with another corporation under a new name.When a corporation decides to shut down, it liquidates its assets.While many firms pay regular dividends, there are special cash dividends that are distributed to shareholders after certain non-recurring events, such as legal settlements or borrowing money to make large one-time cash distributions.Each company establishes its own dividend policy and periodically assesses if a dividend cut or an increase is warranted. A company's board of directors announces a cash dividend on a declaration date, which entails paying a certain amount of money per common share.An investor who bought common shares prior to the ex-dividend date is entitled to the announced cash dividend.Companies that pay dividends typically enjoy stable cash flows, and their businesses are commonly beyond their growth stages.A liquidating dividend is used when a corporation is dissolving and it needs to distribute its assets to its shareholders.Paid after satisfying all corporate debts, the liquidating dividend is meant to provide a return on investment.
However, if the merger is for cash and stock, the target company's stockholders must recognize gain attributed to the transaction to the extent they received cash.
The shareholder would have to report ,000 in gains and his new basis in the stock would be ,000.
For complex returns, consult with a tax professional, such as a certified public accountant (CPA) or licensed attorney, as he can best address your individual needs.
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.
When you receive a liquidating dividend, the amount will be reported to you on a 1099-DIV form, in either box 8 or 9.