BIR Ruling 322-87Facts: The Company is a trading concern and at presentis in the process of liquidation; and thatindividual stockholders will receive theirliquidating dividends in excess of theirinvestment.Ruling: Since the individual stockholders of the Companywill receiveuponitscompleteliquidationall itsassets as liquidating dividends, they will therebyrealie capital gain or loss. The gain, if any,derived by the individual stockholders consistingof the difference between the fair market value ofthe liquidating dividends and the ad!usted cost tothe stockholders of their respective shareholdingsinthesaidcorporation"Sec. #$"a%, Sec. &'(,)ncome Tax *egulations% shall be sub!ect toincome tax at the rates prescribed under Section&+"a% of the Tax Code, as amended by ,xecutive-rder .o. $/.0oreover,pursuanttoSection$1"b%of theTaxCode, asamendedby,xecutive-rder .o. $/,only'23of theaforementionedcapital gainisreportable for income tax purposes if the shareswere held by the individual stockholders for morethan twelve months and +223of the capitalgains if the shares were held for less than twelvemonths.Wise & Co. Inc., v. Meer, GR. -!823"4 distribution does not necessarily become adividend by reason of the fact that it is called adividend by the distributing corporation. 5Theordinary connotation of liquidating dividendinvolves the distribution of assets by acorporation to its stockholders upon dissolution.5The determining element therefore is whether thedistribution was in the ordinary course ofbusiness and with intent to maintain thecorporation as a going concern, or after decidingto quit with intent to liquidate the business.6roceedings actually begun to dissolve thecorporation or formal action taken to liquidate itare but evidentiary and not indispensable.5The distinction between a distribution inliquidationandanordinarydividendisfactual;the result in each case depending on theparticular circumstances of the case and theintent of the parties. )f the distribution is in thenatureof arecurringreturnonstockit is anordinary dividend. 7owever, if the corporation isreallywindingupits business or recapitaliingand narrowing its activities, the distribution mayproperly be treated as in complete or partialliquidation and as payment by the corporation tothe stockholder for his stock. The corporation is,in the latter instances, wiping out allor 6art ofthestockholders8 interestinthecompany...59ains resulting from distributions made incomplete liquidation or dissolution of acorporation as specifically contemplated insection &' "a% of the former )ncome Tax :aw, aretaxable as income, whether the stockholderhappens tobe anindividual or acorporation.Section&' "a% ofthelaw, farfrom limitingthetaxability, provides that the gain thus realied is a5taxable income5 ; under the law so long as again is realied, it will be a taxable incomewhether the distribution comes from the earningsor profits of the corporation or from the sale of allof its assets in general, so long as the distributionis made 5in complete liquidation or dissolution.5