Several items need to be addressed here:
- To answer your specific question, the buyout distribution is reported on a 1099-DIV as a liquidating distribution in box 9.
- In addition to providing the former member with the 1099, you will need to file a copy of this with the IRS using form 1096.
- Additionally, you need to decide on the allocation of the income / loss. You have two options:
- Normal per day per share
- Closing of the books. To use this you will need to make an election. This effectively treats the earnings as if they were earned in two separate periods. This can be a significant issue depending on the earnings or loss of the S corporation.
- The K-1 needs to be marked final. Make sure that the only distributions reflected on the K-1 are normal distributions and not the final liquidating distribution.
- Depending on the $$ involved, you may want to consult with a tax professional.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
