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S corp liquidating distributions

Contact your secretary of state to determine exactly what forms and fees there are for corporate dissolution.

This is similar to the process of filing articles of incorporation that were done when you created the company.

Relinquish licenses or permits such as alcohol sales or general contractor licenses where pertinent to your business and industry.

Answer: This is a commonly misunderstood area of tax law. Section 1.1361-1(l)(1) provide, in part, that “a corporation that has more than one class of stock does not qualify as a small business corporation.” The regulations go on to provide that a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds.

In short, S corporations have more flexibility than you realize to make distributions that are not perfectly pro-rata to its shareholders. Relevant Law: The genesis of the confusion is found in Section 1361(b)(1)(D), which provides that in order for a corporation to be eligible to make an S election, the corporation can only have one class of stock outstanding. As you can see, there is no prohibition on an S corporation having voting and nonvoting stock; rather, it simply can’t have shares of stock that offer the holders different rights to distribution or liquidation proceeds. Here’s the thing; there’s nothing in the statute or regulations that says you can’t make a disproportionate distribution; it simply says that the underlying stock can’t confer upon the shareholders different to distributions.

Any distribution in excess of basis for an S that's always been an S is automatically capital gains.' data-inline-edit-type='wysiwyg' data-inline-edit-url='/answers/529988' id='inline_edit_answer_529988_body' Liquidating divs related to E&P go on a 1099-DIV.

For an S that's always been an S, they don't go on a 1099-DIV.

The corporation caught its own mistake, and asked the IRS to rule on whether it would be permitted to make corrective distributions — which would also be disproportionate — to true up its shareholders and get everyone back on an even playing field.

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The IRS looked to the underlying stock agreements, and finding that they conferred on all the shareholders equal rights to distributions and liquidation proceeds, held that despite having made several disproportionate distributions, the S corporation did not have a second class of stock, and thus did not terminate its S election, provided it make the necessary corrective distributions.Once you file the articles of dissolution, most states require publication of the dissolution in local newspapers' "public notice" section.This allows any creditors to make a claim against the company before assets are liquidated and distributed. Once the articles of dissolution are approved, begin the liquidation of assets. Final payroll is the top priority followed by all other debts.In that case, they show up just as a normal property distribution; there's no distinction between liquidating and non-liquidating.Any distribution in excess of basis for an S that's always been an S is automatically capital gains.Practitioners often construe this requirement to be more restrictive than it really is, believing that a single disproportionate distribution will be an indication that you have more than one class of stock, and — Voila! Applying these concepts to our fact pattern above, if the S corporation makes a disproportionate distribution to A and B, the IRS would look to Treas. Section 1.1361-1(l)(2)(i) for guidance on whether the disproportionate distribution is indicative of multiple classes of stock.Those regulations provide that the determination of whether all outstanding shares of stock confer identical rights to distribution and liquidation proceeds is made based on the corporate charter, articles of incorporation, bylaws, applicable state law, and binding agreements relating to distribution and liquidation proceeds (collectively, the governing provisions).Corporations file IRS Form 1120S and complete Schedule K-1 stating the distribution of profits and assets to shareholders.Some states require a tax clearance before filing the dissolution paperwork.For an S that's always been an S, they don't go on a 1099-DIV.In that case, they show up just as a normal property distribution; there's no distinction between liquidating and non-liquidating.

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