If I forgive the debt does that create income for the S-Corp? And how would I enter that in TurboTax?
I can zero out the balance sheet easily by offsetting loans outstanding against Retained Earnings and Capital Stock. Both belong to me, and they offset perfectly. Is it okay to take that approach? If so, how can I input in TurboTax?
that's what you do for the tax return - there are no ending assets liabilities or equity on schedule L. likely you have cumulative losses. those losses reduced the tax basis you had in the corp which includes capital contributions and loans. Since it seems everything would zero out, your tax basis in loans at liquidation would be zero. There is no forgiveness of debt income
Thanks for the quick reply. That seems to work fine. In TurboTax Sched L is all zero. After zeroing out all B/S accounts but Retained Earnings and Shareholder Loan Payable, those two conveniently offset. To satisfy Turbotax I made an entry on M-1 Worksheet under "Other Permanent Income items:" for "Offset Shareholder Loan and Retained Earnings" which created a permanent book/tax difference, and carried forward to Sched K line 16b, M-1 Line 5a, M-2 Line 3, and Sched K-1 Part III 16B. Does that sound right? I couldn't find any other way to do it.