Which entity type allows for a tax-free liquidation of the entity itself (assuming no cash > basis issues)?

Answer options:

C Corporation

S Corporation

Partnership

None.

How to approach this question

Compare liquidation rules. Corp liquidation is a taxable sale. Partnership liquidation is generally tax-free (carryover basis) unless cash exceeds basis.

Full Answer

C.Partnership✓ Correct

IRC §731. Partnership liquidations are generally tax-free (basis substitution). Corporate liquidations (C or S) trigger gain recognition under §336.

Common mistakes

Thinking S Corp liquidation is tax-free.

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