2017 1120s return listed part of the cash which is in the final closing of the account as ordinary income on the K-1. Also their are two partners with 50% base each. Should cash distributed in the dissolution be treated as capital gains on the K-1 and also on Schedule 1 of their 1040 as capital gain (minus their base)and also minus the amount that was included on the 2017 return?
As a shareholder in an S corporation, you are required to maintain a basis schedule. This represents your economic investment in the S corporation. The basis schedule begins with the original contribution, is updated annually for the applicable lines on the K-1, which includes any distributions.
Liquidating distributions are NOT to be reported on the K-1. These are reported on form 1099-DIV in the liquidating distribution box.
Once a shareholder has received their final liquidating distribution, this is then compared to their basis. If after subtracting the liquidating distribution you have basis remaining, you have a capital loss to report. If the basis goes negative after subtracting the liquidating distribution, you have capital gain to the extent of the negative amount.
Need a little more information to provide guidance.
Not sure I understand "part of cash.....in the final closing....as ordinary income on the K-1"?
Are you saying you only have cash left to distribute to the shareholder's?
Yes only cash remaining - also can I take out the value of 'base' from remaining cash or consider the remaining cash to be 'retained earnings' as it was actually monies distributed to shareholders that was left in the account.
As a shareholder in an S corporation, you are required to maintain a basis schedule. This represents your economic investment in the S corporation. The basis schedule begins with the original contribution, is updated annually for the applicable lines on the K-1, which includes any distributions.
Liquidating distributions are NOT to be reported on the K-1. These are reported on form 1099-DIV in the liquidating distribution box.
Once a shareholder has received their final liquidating distribution, this is then compared to their basis. If after subtracting the liquidating distribution you have basis remaining, you have a capital loss to report. If the basis goes negative after subtracting the liquidating distribution, you have capital gain to the extent of the negative amount.