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
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)
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.