How do I report capital gain resulted from return of capital on Schedule D 1120?

[Yjsnpi]

I'm filing a final tax return for a dissolved corporation. The taxpayer (a C corp) purchased the stock from its shareholders. The difference between the price and the shareholders' capital accounts should be reported as capital gain for the corporation. How do I report this gain on Schedule D 1120? 

[Rick19744]

This is essentially a liquidating distribution to the shareholders.

There is not tax impact at the corporate level.

The liquidating distributions are reported on a form 1099-DIV.

Any gain or loss will be reported at the shareholder level on their personal return.

[Yjsnpi]

Thank you for the clarification. I believe they should report the distributed cash amount on box 8 1099 DIV. If the cash amount a shareholders received is less than his capital amount, where should the corporation report the difference (capital loss for shareholder) on 1099 DIV? For examp$1000. The corporation can only give him $400. Where should the $600 go on 1099 DIV? 

[PatriciaV]

Champ @Rick19744 is correct - the gain or loss on liquidating distributions is not reported at the corporate level. Distributions in excess of basis is income to the shareholders and reported on Form 1099-DIV.

However, distributions up to the capital basis of a shareholder are Return of Capital. The difference between the shareholder's basis and distributions received at the time of liquidation is reported on the shareholders return as an investment loss.

[Rick19744 · Accepted solution]

@Yjsnpi All the corporation reports is the total distribution on the 1099-DIV.

It is at the shareholder level that the gain or loss is determined.

The shareholder will treat this as any other stock investment.

If the liquidating distribution exceeds their stock basis, then there is a gain.

If the liquidating distribution is less than their stock basis, then there is a loss.

This will be reported on form 8949.