@Clark2023
The S corporation does not pay tax at the entity level; this is done at the shareholder level.
As a result, each shareholder maintains a basis schedule of the investment. This basis schedule (now form 7203) is adjusted annually for the applicable lines on the K-1.
So at the end of the journey, if you receive a liquidating distribution that exceeds your basis, that means that you have a capital gain on the investment. If the liquidating distribution is less than your basis, you have a capital loss.
*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.
