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Bill Number: 3326 Ratification Number: 498 Act Number 428 Introducing Body: House Subject: Corporate liquidation
(A428, R498, H3326)
AN ACT TO AMEND SECTION 12-7-970, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO GAIN OR LOSS ON CORPORATE LIQUIDATIONS AND THE BASIS OF PROPERTY RECEIVED IN SUCH LIQUIDATIONS, SO AS TO PROVIDE A DIFFERENT METHOD OF TAXING TAXPAYERS IN CORPORATE LIQUIDATIONS TO INCLUDE PROVISIONS THAT CERTAIN GAINS WILL BE DEFERRED UNTIL THE PROPERTY ACQUIRED IN SUCH LIQUIDATIONS BY THE TAXPAYERS IS SOLD OR OTHERWISE DISPOSED OF.
Be it enacted by the General Assembly of the State of South Carolina:
Section 1. Section 12-7-970 of the 1976 Code is amended to read:
"Section 12-7-970. The final distribution to the taxpayer of the assets of a corporation shall be treated as a sale of the stock or securities owned by him and the gain or loss shall be computed accordingly, except that:
(1) No gain or loss shall be recognized upon the receipt by a parent corporation of property distributed to it in complete liquidation of a subsidiary after December 31, 1959; provided, that (a) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock possessing at least eighty percent of the total combined voting power of all classes of stocks and (b) the transfer of all the property occurs within the taxable year. The basis in the hands of the parent corporation of property received by it without recognition of gain or loss in a distribution as provided for in this section shall be the same as it would be in the hands of the liquidating subsidiary corporation;
(2) In the event of the distribution of property in complete liquidation of a corporation pursuant to a plan of liquidation adopted on or after January 1, 1980, and the distribution is in complete cancellation or redemption of all the stock and the transfer of all the property under the liquidation occurs within the same calendar month, the gain on shares owned by each electing shareholder at the time of the adoption of the plan of liquidation shall be recognized only to the extent provided as follows:
(a) There shall be recognized and treated as a dividend so much of the gain as is not in excess of each shareholder's ratable share of the earnings and profits of the corporation accumulated after December 31, 1926, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred, but without diminution by reason of distributions made during such month, but by including in the computation thereof all amounts accrued up to the date on which the transfer of all the property under the liquidation is completed; and there shall be recognized and treated as short-term or long-term capital gain, as the case may be, so much of the remainder of the gain as is not in excess of the amount by which the value of that portion of the assets distributed to each shareholder which consists of money, or of stock or securities acquired by the corporation after December 31, 1979, exceeds such shareholder's ratable share of the earnings and profits.
(b) For the purposes of the above item (2), the term 'electing shareholder' means a shareholder of any class of stock who is a shareholder at the time of the adoption of the plan of liquidation and whose written election, on a form prescribed by the Tax Commission, to have the benefits of item (2) apply has been filed with the South Carolina Tax Commission no later than the due date for filing such shareholder's income tax return, including extensions thereof.
(c) The basis for computing gain or loss on any property received in connection with a liquidation under item (2) hereof shall be the basis of the stock of the liquidating corporation held by the electing taxpayer at the time of the liquidation, decreased by any money, or by any stock or securities acquired by the corporation after December 31, 1979, and received by the taxpayer in the liquidation and increased by any gain recognized by such taxpayer, such basis to be allocated in a reasonable manner to the property received by the taxpayer in the liquidation."
Section 2. This act shall take effect upon approval by the Governor.