I'm a significant shareholder with a few other close-knit active partners in small C corp that's 8 years old that we will probably close/permanently shut-down some time this year. If this happens we will have a signficant amount of retained earnings + initial paid-in capital (all cash in the bank) to distribute and I'm wondering what the best way to handle this is to minimize taxes. We will have a net tax-loss in 2012 so there's no need to consider this year's profits.
One option is to pay a dividend. Are small company dividends "qualified" for the 15% federal rate? Even if it is qualified, then there's still a problem with the return of paid-in-capital portion getting taxed when it doesn't need to.
Another (better) option would be to get the final distribution classified as long-term capital gain by having the Corp buy back all or most of the stock such that its assets are fully depleted and we all end up with just a long-term gain. Is this possible?
Also, to confirm, is small-company stock is eligible for at least the
15% LTCG rate and Section 1202 is not mandatory?