Final answer:
When a controlled subsidiary corporation liquidates, distributions to the parent corporation are tax-free, while distributions to minority shareholders are generally taxable.
Step-by-step explanation:
When a controlled subsidiary corporation liquidates, there are different tax rules for distributions made to the parent corporation and minority shareholders.
Distributions made to the parent corporation are generally tax-free. This means that the parent corporation does not have to pay taxes on the distribution. The parent corporation's tax basis in the subsidiary's stock is reduced by the amount of the distribution.
On the other hand, distributions made to minority shareholders in a liquidation are generally taxable. The shareholders may have to pay taxes on the distribution, depending on their individual tax situations. The amount of the distribution is generally considered a capital gain or loss for the shareholders.