Built In Loss Limitations | Corporate Distribution Liquidation | CPA Exam REG | Antistuffing Rule
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses
Date: 2019-07-29

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IN addition to related party loss limitation, a second loss limitation applies to sales, exchanges, or distributions of built-in loss property (fair market value less than basis) that is transferred to a corporation shortly before the corporation is liquidated. The built-in loss limitation applies when both of the following conditions are met: • The property was acquired by the corporation in a § 351 (or contribution to capital) transaction. • This acquisition was part of a plan whose principal purpose was to recognize a loss on that property by the liquidating corporation. A tax avoidance purpose is presumed in the case of transfers occurring within two years of a liquidation plan being adopted. This disallowance rule applies only to the extent that a property’s built-in loss at trans-fer is not eliminated by a § 362(e)(2) stepped-down basis. Some built-in losses on property transfers will avoid the basis step-down either because built-in gain properties were also transferred by the shareholder or because the shareholder elected to step down the basis of his or her stock instead. Any loss related to a decline in a property’s value after its transfer to the corporation is not subject to the built-in loss limitation.

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