Final answer:
The report timing of a liquidating distribution for a cash or accrual method of accounting taxpayer is based on their respective accounting methods. Cash method taxpayers report upon receipt of the distribution, whereas accrual method taxpayers report when the right to receive income is fixed and the amount can be reasonably determined.
Step-by-step explanation:
The timing of when a cash method or accrual method of accounting taxpayer reports a liquidating distribution is determined by the accounting method in which the taxpayer operates. For a cash basis taxpayer, income is reported in the year it is actually or constructively received. Therefore, a liquidating distribution would generally be reported in the year it is received. An accrual basis taxpayer, on the other hand, reports income when all events have occurred that fix the right to receive the income and the amount can be determined with reasonable accuracy, which may be before the actual receipt of funds.
In summary, for a cash basis taxpayer, liquidating distributions are reported as income upon receipt, whereas accrual basis taxpayers may recognize it earlier when the right to receive the funds becomes fixed and determinable. Significant events like a vote by the company's directors or shareholders to approve the liquidation could trigger accrual recognition, depending on the precise terms of the distribution agreement.