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

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.

1558

Level 15

Mar 19, 2023 2:54:07 PM

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.

Level 13

Mar 19, 2023 4:59:41 PM

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.

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