Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?
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cwycislak
New Member

Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?

S-Corp dissolved on 12/31/16. $3000 cash and $4000 FMV of office equipment was distributed (liquidating) to two 50/50 s/h's.  I am reading conflicting articles on how to show these  liquidating distributions. Some say to put on Sch K and K-1 (Line 16D) and others say to not report on 1120S but to show on 1099-Div Box 8 and Box 9.  Won't I need to attach information to the K-1's showing the FMV of each asset distributed? 

3 Replies
Rick19744
Level 11

Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?

You have a couple of things going on here:

  • When an S corporation distributes property (noncash) in complete liquidation of the corporation, the corporation recognizes gain or loss as if the property were sold to the distributee at its fair market value.  The gain or loss flows through to the shareholders under the normal S corporation pass-through rules.  
  • Shareholder's then update their basis schedule for the impact of the final K-1 applicable line items.
  • Once the basis schedule is updated, the shareholder can determine their gain or loss; if after you adjust the basis for the liquidating distribution you still have basis remaining, you have a capital loss.  If the liquidating distribution exceeds your basis, causes basis to go below zero, you have a gain to the extent of this "negative" amount.
  • Liquidating distributions of S corporations are reported on form 1099-DIV boxes 8 and 9 (cash or noncash)
*A reminder that posts in a forum such as this do not constitute tax advice.*
cwycislak
New Member

Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?

So according to my example I would show $1500 in box 8 and $2000 in Box 9 on each 1099-Div.  OK.  So does $7000 (total distribution) go on Line 7 on Schedule M-2?  Won't I need to show the FMV on a schedule to each s/h showing their new basis of the assets received?
Rick19744
Level 11

Do you show final liquidating distributions by an S-Corp on Sch K and K-1 (Line 16D) or on 1099-Div Box 8 and/or Box 9 in exchange for Corp stock?

Responses to your follow-up questions:

1) Yes on the 1099-DIV presentation
2) No.  The liquidating distributions do not get reflected on the Schedule M-2.
3) Yes.  This information would be helpful to the shareholder's especially if multiple assets were distributed.  This can be done either as a footnote or on a separate schedule.
*A reminder that posts in a forum such as this do not constitute tax advice.*
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