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Form 8832 Bend Oregon: What You Should Know

Deemed liquidation can also be accomplished through a liquidation election. Learn more about CTB election with this helpful post in TaxTips.com. What is a Form 2553? There is an important reason a purchaser of an eligible entity is required to withhold taxes on any gain by reason of an election made pursuant to section 861(a) as outlined in IRS Publication 526.  The purchaser of an eligible entity owes certain federal income taxes, and the purchaser must pay some federal withholding on the sale of the eligible entity's stock, at certain thresholds. When you are required to withhold taxes from the net amount to be paid, your withholding is based upon the amount of gain that is subject to tax under section 861(a). The amount withheld is equal to the greatest of — The amount to be taxed; or (In other words, the amount paid for the taxable property equals the price paid or the fair market value of the taxable property at that price, as equalized or determined by the Secretary of the Treasury (Sec. 605(b)(1)(B))). This is the same rate as the applicable income tax rate. For purposes of the liquidation election, the Secretary of the Treasury (Sec. 605(b)(3)) bases your tax withholding upon the price of the taxable property at the date that the purchaser disposed of the stock in an amount equal to the fair market value of the taxable property on the date of disposition or the date the purchaser acquires the stock pursuant to the election. For purposes of these regulations, fair market value includes the purchase price, cost of goods sold and the current fair market value (after the proceeds are distributed) of the entire holding that you acquired or would acquire if the liquidation election was never made. This means that no amount is withheld on your purchase price of the stock, and this amount also includes any sales or dividends from the stock made after the election is made. If a purchaser elects to carry over your loss from the liquidation of an eligible entity to your most recent tax year, you will reduce your tax liability under section 861(a) by the amount of your tax-free return of capital gained with respect to the sale of the eligible entity stock. If a purchaser elects to carry over the entire gain in the sale of an eligible entity stock to your recent tax year, no additional tax is due from the seller.

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