Dissolution of S-corporation and ending balance from Schedule M-2

[dnelson225]

This is the first time I am preparing taxes for my in-laws. Last year (2022), my father-in-law dissolved an S-corporation where he was the lone shareholder. The only documentation I have to reference is their 2021 tax return. Within that return on form 1120-S, schedule M-2 shows a balance in the accumulated adjustments account at the end of tax year 2021 of $53,840.

He did not receive any tax forms in 2023 from the attorney that handled the dissolution of the business in 2022. I do not know what to do with the $53,840 that appears on schedule M-2 at the end of tax year 2021.

Thanks in advance for your help.

[Mike9241]

if it was always an S-Corp and everything was properly reported in the past, then at the end of 2021 there should have been at least $53,840 in net assets since the M-2 column A should reflect profits earned by the S-Corp over its life that weren't distributed.   you may need a tax pro and the bank statements or other records. best would be to check back with the attorney. 

[Rick19744]

A couple of comments:

• The attorney most likely only handled the dissolution documents that are necessary for the Secretary of State.
• The 2021 EOY amount of $53,840 just becomes the BOY amount in the AAA column.
• I assume you have the details of any current year (final year) activity to input into the tax return
• You will obviously need to mark the return and K-1 as final
• If there were liquidating distributions, those amounts do not get reflected on the 1120-S.  Those need to be reported on form 1099-DIV.
• The key here will be the shareholder's tax basis as that will drive the gain or loss on dissolution.
• As has been noted, you may need to seek some professional help.  The S corporation tax return was due March 15th.