@Rick19744
Hi Rick, I see that you are very knowledgeable about the S Corp liquidation, basis, etc. I have a situation, would appreciate your input.
The S Corp has one 100% shareholder, and it will be closing down. The liabilities of the S Corp are higher than the assets. I want to make sure that I handle all closing entries correctly and report it all correctly on 1120S and on 1040. So, I understand that we are selling all assets and using all cash to pay down debts. However, even after that, there is a still a SBA EIDL loan balance (business assets is the collateral for that loan and the shareholder is personally liable for the loan). The shareholder will not get any distributions, obviously, since the assets won't even cover the debt. So, seems, the shareholder will personably assume the SBA EIDL Loan balance. Questions:
1. How do we reflect that the shareholder will assume the balance of that debt and how do we report it on 1120S and or 1040 or do we? And on books, do I zero out the SBA EIDL debt into retaining earnings on the balance sheet to remove it from the S Corp liability ?
2. The shareholder's capital stock is listed on the balance sheet as $5,000. He gets no distribution in exchange for the stock. What happens with the stock in this situation? How do I handle it on books and on tax returns?
3. The shareholder has zero stock basis. And suspended/unallowed losses from prior year due to the basis limitation. Those suspended/unallowed losses can't be claimed on 1040 upon dissolution of the S Corp, correct?
Thank you for your help!
