As noted by @Anonymous_ , property distributions from an S corporation are treated as if there was a sale of the property at FMV.
- You will have a final return due the 15th day of the 3rd month after liquidation.
- Technically the S corporation should file a form 966 (not fatal)
- Liquidating distributions should be reported on form 1099-DIV and not the K-1
- Since there is a deemed sale of the property at FMV, you will have a gain at the S corp level and depreciation recapture. No loss is allowed on property distributions.
- Since no loss is allowed, I would recommend you sell the inventory at the S corporation level. Make sure this sale is to an unrelated party
- You will then have a gain or loss on the S corporation investment. This will be determined by updating your tax basis schedule for the final K-1 activity and then computing the gain or loss. This will be reported on form 8949 and Sch D. TT will have some questions related to this since you will be indicating this is a final K-1. Your "sales" price will be the FMV of all property distributions (amount reported on the form 1099-DIV) and then the cost will be your tax basis.
- Also make sure you touch base with your Secretary of State as there is most likely articles of dissolution required and possible other state requirements.
- You should also technically have a plan of liquidation, and as a result, it may be good to meet with an attorney.
*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.
