Rules for liquidating
In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.
The company was “administratively dissolved” some time after, for example, effective January 25, 2008, due to its failure to timely pay state franchise taxes.
If you're thinking about the money you've been saving in CDs, unless they're about to mature, you should probably look elsewhere.
Liquidating a certificate of deposit before maturity can have significant financial consequences.
At issue is whether the company’s status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that “…where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved…” In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.
That’s done in the same proportion that the number of shares within a block bears to the total number of shares owned by the shareholder. In addition, the dissolution and reincorporation will not affect its shareholders’ bases and holding period in its stock.According to a survey by published in 2010, the average early withdrawal penalty depends on the CD's term.Banks charge, on average, three months of interest for CDs with maturities of less than one year and six months of interest for CDs with longer maturities.It can be recognized only after the corporation has made its final distribution, or at least its last substantial distribution. Contributor Robert Willens, founder and principle of Robert Willens LLC, writes a regular tax column for The last substantial distribution can be used only if, at that time, the amount of the final distribution is both de minimis and determinable with “reasonable certainty.” (See in this regard Rev. Footnotes *Except in instances where the liquidation is governed by Section 332(a), and Section 337(a). In that case, the distributee shareholder is another corporation which owns at least 80 percent of the voting power and value of the liquidating entity’s stock on the date of the planned complete liquidation is adopted and all times thereafter until the receipt of the property.) **When a complete liquidation is followed by a pre-arranged transfer of all or part of its essential operating assets to a second (almost always newly-created) controlled corporation, the steps may be “collapsed” and treated as a single, unitary transaction which bears an unmistakable resemblance to a reorganization. 1.331-1(c) “…a liquidation which is followed by a transfer to another corporation of all or part of the assets of the liquidating corporation…may have the effect of…a transaction in which no loss is recognized and gain is recognized only to the extent of other property…”) In LTR 200806006, however, it is highly unlikely that, if the dissolution had caused a liquidation, such liquidation would have been “stepped together” with the reincorporation (to find a reorganization). Such a transaction is popularly known as a liquidation/reincorporation. In the instant case, the corporate taxpayer would have been unaware of the fact that it had been completely liquidated and, thus, its eventual reincorporation, in belated response to such liquidation, could not be seen as part of a unitary transaction which encompassed both the liquidation and reincorporation. To entice customers to commit their money for the period, banks typically offer higher interest rates on CDs compared to savings accounts to make up for the fact that you're not able to withdraw from the account without penalty whenever you want.If your CD hasn't matured yet, you're going to have to pay a penalty to get your money out of the account.Since the bank was expecting to have your money in its account until the CD matures, if you take it out early, you're going to have to pay a penalty.Generally, the only way to avoid these penalties is to wait until the CD matures.