Glenda,
If the corp is liquidating, you’ll also have to report the sale of the owner’s stock back to the corp. To determine the gain or loss on the sale of the stock, you need to know the shareholder’s basis, which changes from year to year for S Corp stockholders. The initial 20K establishes the beginning basis. After that, the basis increases for items of income and gains and additional contributions of capital. It could also increase for money the shareholder lends to the company. It decreases for items of loss and deductions, and for distributions. Basis must be tracked year-after-year for S Corp shareholders. The asset sale will be reflected on the K-1, and the items on the K-1 will create additional adjustments to basis. The shareholder will then sell his stock back to the corp in return for assets and cash, and will report the stock sale on Form 1040.
John Stevens, EA
Stevens Tax & Accounting, Inc., dba Equi-Tax
651-773-5000
FAX 651-457-4529
equitax@unique-software.com
www.equitax.net
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From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Glenda Stockwell, CPA, PC
Sent: 10/14/2008 9:36 AM
To: Taxchat
Subject: [taxchat] S Corp Liquidation
I'm trying to help a client think through a process that I am not really familiar with.... I will of course suggest that they take their planning to an 'expert' in this field - But now I'm curious...
S corp has sold all of it's assets for a profit which will pass through on a K-1 to the sole share holder.
Shareholder had invested 20,000 in stock in the corporation.
Or maybe I'm not thinking clearly and this has 'no effect'. ARRGH!
Thanks!
Glenda Stockwell
Certified Public Accountant
stockwellcpa@
712-523-2173
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