Non liquidating distribution s corporation consolidating web sites
A constructive dividend arises when a corporation distributes earnings and profits to shareholders without formally declaring a dividend but without the expectation of repayment.Dividends may be formally declared or they may be constructive.So what happens if a corporation (C Corp or S Corp) distributes property or stock other than cash to a departing shareholder?
Also when a shareholder in exchange for cash, redeems a corporation stock, the corporation recognizes no gain. Generally a corporation will recognize capital gains when it distributes capital assets or Sec 1231 assets.
In addition to taking advantage of the lower rates for individuals, the pass-through entity eliminates double taxation associated with the payment of dividends from C corporations.
Although both S corporations and partnerships are now tax-favored entities, there are differences between the two.
For most tax practitioners, this would elicit the following Pavolovian reaction: “You should NEVER put real estate inside a corporation.” And while there are very few NEVERS in the tax world, this one is pretty darn accurate.
But do you really understand why you should never put real estate into a corporation?