Not only the sugar dissolves, but a corporation also does

What is Form 966: Corporate Dissolution or Liquidation?

Corporations can notify the Internal Revenue Service (IRS) of their intention to dissolve or liquidate by using Form 966, a tax form. The process of closing a corporation's doors and ending its existence is known as dissolution. The process of disposing off a company's assets and giving its shareholders the proceeds is known as liquidation.

Who needs to file Form 966?

Following the adoption of a resolution or plan to dissolve or liquidate, all corporations, including farmer's cooperatives, are required to file Form 966 within thirty days. Form 966 filing is not necessary for eligible subchapter S subsidiaries or exempt entities.

What information is required on Form 966?

These details are needed for Form 966:

1. The name, address, and employer identification number (EIN) of the corporation.

2. The adoption date of the resolution or plan of dissolution or liquidation.

3. The kind of dissolution or liquidation (such as mergers, partial liquidations, or total liquidations).

4. The expected assets and liabilities of the company as of the resolution or plan date.

5. The anticipated tax liabilities of the company for the current and upcoming fiscal years.

How to file Form 966?

You can mail or electronically file Form 966. You must register for an account on the IRS website in order to submit online. If filing by mail, the corporation must mail its completed form to the IRS Service Center along with its income tax return.

What happens after Form 966 is filed?

When Form 966 is filed, the IRS will send a letter acknowledging receipt of the form to the corporation. The letter will also include a checklist of items that must be completed before the corporation can be dissolved or liquidated.

Additional information

Here are some additional considerations for Form 966:

1. If the resolution or plan to dissolve or liquidate the corporation is amended or supplemented after Form 966 is filed, the corporation must file another Form 966 within 30 days of the amendment or supplement.

2. Corporations that are dissolving or liquidating may be required to pay taxes on asset sales gains.

3. Dissolving or liquidating corporations must notify their state and local tax authorities of their intention to dissolve or liquidate.

Some practical examples of when Form 966 would be filed:

1. A company is going out of business and intends to sell all of its assets and distribute the proceeds to its shareholders.

2. A corporation merges with another corporation, effectively ending its own existence.

3. A corporation is dividing into two or more corporations and is selling some of its assets to distribute to the new corporations.

4. A corporation is being acquired by another corporation, effectively ending its own existence.

Distribution of Property:

State law governs the distribution of property in the event of a corporate dissolution. In general, the assets of the corporation must first be used to pay off all of its debts and liabilities. Any remaining assets can then be distributed to the shareholders of the corporation.

Assets are typically distributed to shareholders in proportion to their ownership interest in the corporation. However, the articles of incorporation or bylaws of the corporation may specify a different method of distribution. For example, the articles of incorporation may state that certain types of shareholders, such as preferred shareholders, receive distributions before other shareholders.

The directors of the corporation are in charge of overseeing the distribution of assets to shareholders. The directors must ensure that all debts and liabilities of the corporation have been paid off and that assets have been distributed to shareholders in accordance with the corporation's governing documents.

Example of how property might be distributed in corporate dissolution:

Alice and Bob are the two shareholders of ABC Corporation. Alice owns 60% of the corporation's stock, while Bob owns 40% of the stock. ABC Corporation decides to close its doors and sell its assets. After paying off all of the corporation's debts and liabilities, the corporation has $1 million in remaining assets.

The remaining $1 million in assets would then be distributed to Alice and Bob in proportion to their ownership interests in the corporation by the directors of ABC Corporation. This equates to Alice receiving $600,000 (60% of $1 million) and Bob receiving $400,000 (40% of $1 million).

It is important to note that property distribution in corporate dissolution can be a complicated process. The governing documents of the corporation, the type of dissolution, and the claims of creditors are all factors that can influence how property is distributed. When distributing property in a corporate dissolution, corporations should consult with an attorney to ensure that they comply with all applicable laws and regulations.

Specific example of how Form 966 would be used:

ABC Corporation has made the decision to close its doors. The board of directors of the corporation votes to dissolve the corporation on January 1, 2024. ABC Corporation must file Form 966 with the IRS within 30 days of adopting the resolution.

Following the filing of Form 966, the IRS will send ABC Corporation a letter acknowledging receipt of the form. The letter will also include a checklist of items that must be completed by the corporation before it can be dissolved.

ABC Corporation must then proceed with its business dissolution, which may include selling assets, paying off debts, and distributing any remaining assets to its shareholders. ABC Corporation will cease to exist once the dissolution process is completed.

It should be noted that this is merely a simplified example. The specific requirements for dissolving or liquidating a corporation may differ depending on the state in which it is incorporated and the type of dissolution or liquidation.

Conclusion

Form 966 is required for corporations that are dissolving or liquidating. It is critical to file Form 966 on time and with all required information.

Some sources for Form 966:

1.       Form 966, Corporate Dissolution or Liquidation: https://www.irs.gov/forms-pubs/about-form-966

2.       Instructions for Form 966: https://www.irs.gov/pub/irs-prior/f966--1993.pdf

Some important court judgments on Form 966:

1.       United States v. Commissioner of Internal Revenue, 998 F.2d 202 (4th Cir. 1993): In this case, the court held that a corporation is not required to file Form 966 until it has adopted a resolution or plan to dissolve or liquidate. The court also held that the IRS cannot require corporations to file Form 966 more than 30 days after adopting a resolution or plan to dissolve or liquidate.

2.       Commissioner of Internal Revenue v. Court Holding Company, 324 U.S. 331 (1945): In this case, the court held that a corporation that is dissolving or liquidating can be taxed on the gain from the sale of its assets, even if the corporation distributes the proceeds from the sale to its shareholders.

These are just a few examples of important court judgments on Form 966. It is important to note that the law on corporate dissolution and liquidation is complex and ever-changing.

Some important terms in relation to Form 966:

1.       Corporate dissolution or liquidation: The process of winding down a corporation's operations and terminating its existence (Section 331 of the Internal Revenue Code).

2.       Resolution or plan to dissolve or liquidate: A formal action taken by a corporation's board of directors to dissolve or liquidate the corporation (Regulation Section 1.331-1(a)).

3.       Estimated assets and liabilities: The corporation's best estimate of its assets and liabilities as of the date of the resolution or plan to dissolve or liquidate (Form 966, Instructions for Form 966).

4.       Estimated tax liability: The corporation's best estimate of its tax liability for the current and following tax years (Form 966, Instructions for Form 966).

5.       Gains from the sale of assets: The difference between the amount the corporation receives for selling an asset and the corporation's adjusted basis in the asset (Section 1001 of the Internal Revenue Code).

6.       Distribution of assets to shareholders: The transfer of assets from a corporation to its shareholders (Regulation Section 1.331-1(a)).

7.       Shareholder: A person or entity that owns shares of stock in a corporation.

8.       Director: A member of a corporation's board of directors, which is responsible for overseeing the corporation's business and affairs.

9.       Articles of incorporation: The legal document that creates a corporation and sets forth its basic structure and powers.

10.   Bylaws: The rules and regulations that govern a corporation's internal operations.

I hope this is helpful!