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bps2001
Level 2

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

I closed my S Corporation on Dec 31.  The company had no debt other than an amount owed to me when I provided cash to the company over the years to cover expenses when sales were inadequate.  The amounts I provides were not covered under a formal loan agreement, so any funds I "loaned" to the firm were lost (can't support any capital losses).   When the company was closed, the remaining cash in the company' s account was removed and returned to me (an amount far less than I had provided over the years).  I am not claiming any personal (capital) loss for the amount of funds I provided over that time - just closing the books and walking away.  However, when completing my TurboTax for my personal taxes, I am being required to complete "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a".  The problem is that the form assumes there was a sale of assets to a buyer.  My S corp had no assets other than my cash which was sitting in the company account prior to closure.  I can find no instructions for this specific "additional info" schedule on how to complete the form.  Can I ignore this form since it doesn't seem to apply?  Does any information from this "additional info" schedule get reported to the IRS?

 

The S corp's Schedule K-1 only shows the operational loss for the year in Box 1.  Shares owned (Box G) at the beginning of the year are the same as the end of the year (other than the fact they are worthless now).  Loans from Shareholders (Box H) has always been "0" (no formal loan documents ever existed).

1 Best answer

Accepted Solutions
Rick19744
Level 11

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

Ignore the nomenclature / language in the disposition area.

Here are my comments:

  • As a shareholder in an S corp you should have been maintaining a basis schedule of your investment in the S corporation.
  • Additionally, the "loans" you made to cover expenses will most likely be deemed capital contributions by the IRS, so treat them as such.
  • You need to update your basis schedule for the current year K-1 activity; excluding any distributions reflected on the K-1.  Technically there probably shouldn't be any as liquidating distributions should not be reported on the K-1, but on a 1099-DIV.
  • Any cash distribution to you from the S corporation is deemed a liquidating distribution
  • When TT asks for your cost basis, that is your basis in the S corporation
  • Sales proceeds will be your liquidating distribution
  • TT will handle the rest
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

4 Replies
MaryK1101
Employee Tax Expert

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

 
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Rick19744
Level 11

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

Ignore the nomenclature / language in the disposition area.

Here are my comments:

  • As a shareholder in an S corp you should have been maintaining a basis schedule of your investment in the S corporation.
  • Additionally, the "loans" you made to cover expenses will most likely be deemed capital contributions by the IRS, so treat them as such.
  • You need to update your basis schedule for the current year K-1 activity; excluding any distributions reflected on the K-1.  Technically there probably shouldn't be any as liquidating distributions should not be reported on the K-1, but on a 1099-DIV.
  • Any cash distribution to you from the S corporation is deemed a liquidating distribution
  • When TT asks for your cost basis, that is your basis in the S corporation
  • Sales proceeds will be your liquidating distribution
  • TT will handle the rest
*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

bps2001
Level 2

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

Thank you for your response.

Rick19744
Level 11

Closure of S Corporation - "Sch K-1 S Corporation Additional Info - Disposition of Interest, Part II Line 1a"

You are most welcome

*A reminder that posts in a forum such as this do not constitute tax advice.*
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