Liquidation Sales Ruled Non-Business Income in Illinois, Missouri, Utah

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Recent court decisions in Illinois, Missouri, and Utah have ruled that gains from a liquidation sale of a business do not constitute taxable business income.

In each case, the respective state revenue department disagreed with the companies' classification of the gains and issued the companies notices of deficiency. But the companies successfully argued in court that under the respective state laws the gains do not pass the "functionality test," under which taxable gains must result from activity that is considered regular business operations.

The judges in all three cases agreed with the companies that business liquidation sales cannot be categorized as regular business operations.

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