The treatment of distributions in liquidations differs from that in nonliquidating distributions in that the corporation is always allowed to recognize loss on a liquidating distribution.

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In liquidating distributions, corporations are generally not allowed to recognize a loss when distributing property to shareholders; they can only recognize gains. The treatment of losses is restricted to prevent tax avoidance strategies that might involve recognizing artificial losses to reduce taxable income.

The Treatment of Distributions in Liquidations Differs from That in Nonliquidating