S corporations generally recognize gain or loss on each appreciated and depreciated asset they distribute in liquidation.

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S corporations are pass-through entities, which means that their income and losses flow through to the shareholders' personal tax returns. In the case of liquidation, the S corporation must recognize gain or loss on each appreciated and depreciated asset it distributes. This is done to ensure that the shareholders are taxed at their appropriate level of income.

S Corporations Generally Recognize Gain or Loss on Each Appreciated