the following assumes the corp has always been an S-Corp. the deemed sale would be treated as an actual sale with the result of depreciation recapture and capital gain. these items are reported on the k-1 along with the distribution. the income items will increase your tax basis so in theory, the distribution should be equal to your tax basis. thus there is no additional gain nor is there any loss on the stock to be reported. You would still have to report the liquidation of the stock on your 1040. the sales price to be reported would be the distribution amount which should, in theory, equals your tax basis so there is no gain or loss. however, it is best to use a tax pro to go over this transaction so there are no surprises.
