Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?

Forum|Forum|6 years ago
June 1, 2019
2 replies
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S-Corp dissolved on 12/31/16. $3000 cash and $4000 FMV of office equipment was distributed (liquidating) to two 50/50 s/h's. I am reading conflicting articles on how to show these liquidating distributions. Some say to put on Sch K and K-1 (Line 16D) and others say to not report on 1120S but to show on 1099-Div Box 8 and Box 9. Won't I need to attach information to the K-1's showing the FMV of each asset distributed?

TurboTax Business Windows

Rick19744

Employee

You have a couple of things going on here:

When an S corporation distributes property (noncash) in complete liquidation of the corporation, the corporation recognizes gain or loss as if the property were sold to the distributee at its fair market value. The gain or loss flows through to the shareholders under the normal S corporation pass-through rules.
Shareholder's then update their basis schedule for the impact of the final K-1 applicable line items.
Once the basis schedule is updated, the shareholder can determine their gain or loss; if after you adjust the basis for the liquidating distribution you still have basis remaining, you have a capital loss. If the liquidating distribution exceeds your basis, causes basis to go below zero, you have a gain to the extent of this "negative" amount.
Liquidating distributions of S corporations are reported on form 1099-DIV boxes 8 and 9 (cash or noncash)

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

cwycislakAuthor

Employee

So according to my example I would show $1500 in box 8 and $2000 in Box 9 on each 1099-Div. OK. So does $7000 (total distribution) go on Line 7 on Schedule M-2? Won't I need to show the FMV on a schedule to each s/h showing their new basis of the assets received?

Clark2023

Hello,

Hoping someone can help me understand since I feel this is in the same topic area as this post.

I follow completely the need to do a 1099 DIV and how to report it in the personal return but I am having a hard time understanding for what reason this would be causing a gain on the personal return after it is all said and done. The basis left on 7203 for the S-Corp is less than the liquidating distribution.

I am guessing there has to be a simple explanation for why this would occur and I am just overthinking this one!

Would appreciate any help offered!

RobertB4444

The gain to the S-Corp is because the transfer is done at the fair market value of the liquidating assets as if they had been sold for that price. Then the resulting gain is used to offset the shareholder basis.

@Clark2023

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