CASH LIQUIDATION DISTRIBUTION

The amount of capital that is returned to the investor or business owner when a business is liquidated. Cash liquidation distributions are usually considered a nontaxable return of principal. Credit unions send this sort of distribution to their depositors when they are liquidated as well.

Proceeds from cash liquidation distributions are reported on Form 1099-DIV. However, only the amount of distribution that is in excess of the recipient's original investment is taxable. The gain is then reported on schedule D.