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May 1, 2023
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Filing a 1099-div. S Corp dissolving, report the total liquidation dist. amount on line 9, do I figure the stock basis and enter the capital gain amount on line 2a also?

  • May 1, 2023
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Best answer by Rick19744

To address your specific question:

  • The form 1099-DIV only reports the liquidating distribution(s) in the applicable box (9 or 10)
  • Stock basis should be maintained by the respective shareholder
  • The shareholder will then report both pieces of information on their 1040 form 8949
    • Selling Price = liquidating distribution; both cash and non-cash
    • Cost basis = shareholder basis after adjusting for the final K-1 items
    • Make sure you do not adjust the basis by any liquidating distribution

2 replies

Critter-3
May 1, 2023

An S-Corp does not issue a 1099-Dividend.  Everything would be listed on the K-1 form. 

 

Read the 1120-S instructions here :  https://www.irs.gov/forms-pubs/about-form-1120-s

Rick19744
Employee
May 2, 2023

@Critter-3 

An S corporation liquidating distribution should be reported on form 1099-DIV box 9 or 10 as appropriate.

The liquidating distributions should not technically be reported on the K-1.

The liquidating distribution follows the corporate rules under Section 331.

See the following snippet from an S corporation treatise commentary.

The liquidating distribution ($32,000) is reported to Sam on Boxes 9 (for cash distributions) and 10 (for noncash distributions) of Form 1099-DIV and flows to Schedule D of his Form 1040. The original Form 1099-DIV must be sent to the IRS with transmittal Form 1096 (Annual Summary of Transmittal of U.S. Information Returns).

 

*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.
March 5, 2024

There appears to be a bug in TurboTax Premium with regard to the reporting of the Liquidation Distribution/Dividend from Form 1099-DIV, Box 9. The only place in TurboTax to enter this figure is in the "Interest and Dividends." When you enter the figure and continue you get a screen message which states "We'll handle your cash liquidation distribution of $__________ from ___________ later." At some point when cycling through the TurboTax screens, you are asked to complete Form 7203 which appears on the screen ready for entry. Form 7203, once completed, provides your basis which should be deducted from your Liquidation Distribution on Form 1040, Schedule D to determine your gain or loss, whether it be short-term or long-term. This information should also be shown on Form 8949.

 

The problem is that TurboTax never populates Schedule D and when searching for a Form 8949 in TurboTax, I found a statement that Form 8949 is created automatically based on input to Schedule D. When I get all the way through the TurboTax input tabs and get to "Review," I get a message stating that everything looks good. TurboTax never returned "later" to the issue of the Liquidation Distribution nor did it calculate the additional tax on what should have been calculated, in my case, as a long-term gain.

 

I discovered that I can force the entry of the Liquidation Distribution, my basis and the long-term gain on Schedule D in the Forms area of the software. That does adjust my taxes due for the long-term gain however, the required Form 8949 is still not available and I am getting various error messages.

 

Also worth noting, although this is an IRS issue, is that Form 8949 does not easily accommodate the entry of information from a 1099-DIV. Form 8949 is set up for entries from 1099-Bs. In order to get around this problem, you have to check one of the Boxes for transactions not reported to you on a 1099-B (Box C in Part L or Box F in Part II). I mention this because this could become an issue in TurboTax once Form 8949 is added. 

 

I desperately need to resolve this dilemma because my tax return is far too complicated to file a paper version.  Any help that is offered would be greatly appreciated!

Rick19744
Rick19744Answer
Employee
May 2, 2023

To address your specific question:

  • The form 1099-DIV only reports the liquidating distribution(s) in the applicable box (9 or 10)
  • Stock basis should be maintained by the respective shareholder
  • The shareholder will then report both pieces of information on their 1040 form 8949
    • Selling Price = liquidating distribution; both cash and non-cash
    • Cost basis = shareholder basis after adjusting for the final K-1 items
    • Make sure you do not adjust the basis by any liquidating distribution
*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.