Deduction for Uncompensated Liquidation Liabilities

IRC §334

Provides a deduction for the payment of certain liabilities discovered after a complete liquidation that were not compensated for by insurance.

Eligibility

Applies to liabilities not considered relevant to stock value at the time of distribution and subsequently paid by the distributee.

Frequently Asked Questions

Who is eligible for the Deduction for Uncompensated Liquidation Liabilities?

Applies to liabilities not considered relevant to stock value at the time of distribution and subsequently paid by the distributee.

How does the Deduction for Uncompensated Liquidation Liabilities work?

Provides a deduction for the payment of certain liabilities discovered after a complete liquidation that were not compensated for by insurance.

What law authorizes the Deduction for Uncompensated Liquidation Liabilities?

The Deduction for Uncompensated Liquidation Liabilities is authorized under IRC §334 of the Internal Revenue Code (Title 26, United States Code).

Statutory Text — IRC §334

Source: Internal Revenue Code, Title 26, United States Code

§ 334. Basis of property received in liquidations(a) General ruleIf property is received in a distribution in complete liquidation, and if gain or loss is recognized on receipt of such property, then the basis of the property in the hands of the distributee shall be the fair market value of such property at the time of the distribution. (b) Liquidation of subsidiary(1) In generalIf property is received by a corporate distributee in a distribution in a complete liquidation to which section 332 applies (or in a transfer described in section 337(b)(1)), the basis of such property in the hands of such distributee shall be the same as it would be in the hands of the transferor; except that, in the hands of such distributee—(A) the basis of such property shall be the fair market value of the property at the time of the distribution in any case in which gain or loss is recognized by the liquidating corporation with respect to such property, and (B) the basis of any property described in section 362(e)(1)(B) shall be the fair market value of the property at the time of the distribution in any case in which such distributee’s aggregate adjusted basis of such property would (but for this subparagraph) exceed the fair market value of such property immediately after such liquidation. (2) Corporate distributeeFor purposes of this subsection, the term “corporate distributee” means only the corporation which meets the stock ownership requirements specified in section 332(b). (Aug. 16, 1954, ch. 736, 68A Stat. 104; Pub. L. 89–809, title II, § 202(a), (b), Nov. 13, 1966, 80 Stat. 1576; Pub. L. 94–455, title XIX, §§ 1901(a)(45), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1772, 1834; Pub. L. 97–248, title II, §§ 222(e)(1)(C), 224(b), Sept. 3, 1982, 96 Stat. 480, 488; Pub. L. 99–514, title VI, § 631(e)(4), Oct. 22, 1986, 100 Stat. 2273; Pub. L. 100–647, title I, § 1006(e)(6), Nov. 10, 1988, 102 Stat. 3401; Pub. L. 105–277, div. J, title III, § 3001(b)(2), Oct. 21, 1998, 112 Stat. 2681–904; Pub. L. 108–357, title VIII, § 836(b), Oct. 22, 2004, 118 Stat. 1595; Pub. L. 109–135, title IV, § 403(dd)(1), Dec. 21, 2005, 119 Stat. 2630.)

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Legal Sources

US Code (Official) — 26 USC §334 → Cornell Law Institute — 26 USC §334 → Search IRS.gov for IRC §334 → Treasury Regulations (26 CFR) →

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