Explain the difference in tax treatment between a partial liquidation and a complete liquidation.
What will be an ideal response?
A complete liquidation is defined by Reg. Sec. 1.3322(c) as one or a series of distributions made by a liquidating corporation that completely cancels or redeems all of its stock in accordance with a plan of liquidation. A partial liquidation is defined by Sec. 302(e) as a distribution that (1) is not essentially equivalent to a dividend (when determined at the corporate level rather than at the shareholder level), and (2) is pursuant to a plan of liquidation and occurs within the tax year in which the plan is adopted or within the succeeding tax year. Generally, a partial liquidation involves the corporation either ceasing to conduct a trade or business (while still continuing to conduct a second trade or business) or contracting its business activities. In either case, the corporation remains in existence after the partially liquidating distribution.
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Answer the following statement true (T) or false (F)