Principal payments are considered payments for the stock retired. Interest is treated as interest income. Does not apply to inventory unless bulk sale occurs. Corporate sale must take place within the 12-month period starting with the adoption of a plan of liquidation. Liquidation must be completed within 12-month period.
Shareholders treat distributed property as if they purchased it from corp.
FMV of property received is assumed to be no less than the amount of the liability assumed with the assets. The recognized loss is limited to the amount of decline in the value following acquisition if principal purpose was to recognize loss. No formal plan - all distributions must occur within one year. Formal plan - all distributions must occur before the close of the third year following the first distribution. Parent's basis in subsidiary is ignored.