Please see this answer from MichaelDC:
There's a tiny box that needs to be checked on the 1099-DIV screen. (See the attached screenshot below. Click to enlarge.)
First, how to get there; then a little info below on why Box 8 and 9 is usually not taxable.
1. With your tax return open, search for 1099-DIV or 1099DIV (lower-case works also) and then click or tap the "Jump to" link in your search results.
2. Answer Yes to Did you receive any dividend income?
3. Choose your bank or brokerage from the list to import your 1099-DIV and click/tap Continue or manually enter your 1099-DIV by clicking/tapping I'll type it in myself.
4. Follow the on screen instructions to enter your 1099-DIV.
Don't combine the amounts from 2 or more 1099-DIV forms if they're from the same payer. Instead, enter additional 1099-DIVs individually by answering Yes to Do you have any more dividend income from somewhere else which appears a few screens down the road.
If you are entering a second 1099-DIV, simply click/tap on Add Another Broker or Payer and follow the same steps above.
You may not need to report this income, however fill in the 1099-DIV as written on the form.
Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9.
Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.
If it was a partial liquidation, there is nothing to report on your tax return. You adjust the cost basis of your stock or mutual fund by the amount of the partial liquidation shown in Box 8 or Box 9, then when you eventually sell the stock you will use the lowered cost basis as the purchase price of the stock.
If the liquidating distribution shown in Box 8 or 9 is a complete liquidation, then report the amount in Box 8 or 9 on the stock sale screen as a stock sale. For example, if your cost basis in stock in a company is $1,000 and the company is totally liquidated, then if you receive a 1099-DIV with Box 8 showing $400 and you received nothing else from the liquidation, then you would report the stock as a sale on the stock sale screen and report $400 as the sales price and $1,000 as the cost basis in the stock that was completely liquidated.
Under a C corp liquidation, I understand that the corporation will send a 1099-DIV, and the shareholders will report a capital gain/loss accordingly on their personal returns.
But how does the corporation itself report the distribution on its own 1120 form schedule D?
Is the following statement true?
Liquidation is a taxable event for both the shareholder and the corporation.
Sorry, i am just trying to get this right.
From some other site online it says
" If the corporation distributes an amount greater than shareholders' basis in their stock, then the corporation reports a loss on its final tax return. If it distributes an amount smaller than the shareholders' basis, then it reports a taxable gain. In other words, a shareholder's gain is the firm's loss; a shareholder's loss is the firm's gain."
Is this actually true?
If so, how does one specifically report this transaction on Schedule D? Take this example: there is a single shareholder who bought all shares of the C corp in 2015 for $100 dollars. In December 2022, the C corp shuts down and returns all remaining assets, which is only cash, of $75 dollars to the shareholder.
The C corp sends a 1099-DIV to the shareholder reflecting the $75.
But here is the part I can't figure out - how does the corp reflect this transaction on schedule D of their 1120 return? Presumably it is a capital gain for the company (the corp sold all the shares in 2015 for $100 dollars and bought them back at liquidation for $75). Turbotax won't let me list a "purchase" date of December 2022 and a "sold" date of 2015. So what is the right way to represent this supposed $25 capital gain for the corporation?
Thanks in advance for the assistance.
The shareholder reports their liquidation gain/loss on their individual tax return by entering their 1099-Div.
There is not a tax impact at the corporate level. All the corporation reports is the total distribution on the 1099-DIV.
Click this link for more info on Liquidating Distributions.
OK, that is great!
So to be 100% clear, information I was reading online saying liquidation is a taxable event for the corporation is just plain wrong?
And I don't have to report the liquidation as a capital gain/loss on Schedule D?
That is good to hear!
No, your initial post was correct. A liquidation can be a taxable event for a corporation and its shareholders.
You probably will have to report the liquidation as a capital gain/loss. If the liquidating distribution shown in Box 9 or 10 of your 1099-DIV is a complete liquidation, then report the amount in Box 9 or 10 on the stock sale screen as a stock sale. You will report it in the Investment Income section under Stocks, Mutual Funds, Bonds and Other.
@csommers
This is why this issue has been so difficult to understand! Some folks say I only need to report the (complete) liquidation as a 1099-DIV, nontaxable event, while others say I have to report it as a capital gain/loss.
So I am admittedly still confused!
But if I do report it on Schedule D, do I use the liquidation date for both the Date Sold and Date Acquired for the shares being "repurchased" from the shareholder? Given the share repurchase seems like a short sale from the company's perspective? (i.e, the corporation "sold" the shares to the shareholder years ago, and then upon liquidation of the company in 2022, the corporation is "buying" the shares back, much like a more typical stock short sale).
All advice continues to be welcome
Not exactly. The date acquired would be the date you acquired the shares. When the corporation re-purchases your shares, you can use that date as the sale date.
Because you reference a C corporation, how you report these transactions and any gain/loss may change significantly if the redeeming corporation is owned, at least in part, by persons that are related to the seller. In that situation, if the seller's ownership has been completely terminated, such termination is generally treated as a sale. However, if the seller's interest in the redeeming corporation has not been completely terminated, then the corporation's payment to the selling shareholder may be treated as a dividend distribution, and further, the entire distribution amount may be subject to tax without any adjustment based on the seller's basis.
@csommers
Thank you again for the advice.
I will try to be as clear as possible with this post to try and avoid any further confusion.
I am the sole owner of this C corporation. I bought all the shares (200) back in 2015.
As of 12/13/2022, I have liquidated the company, it is closing its doors.
As I understand it, by liquidating the company, the company will be buying back the shares from the shareholder, which is me.
So with this post, I am trying to understand how the C corporation will fill outs its tax return (its 1120 form).
My questions:
1. Does the corporation reflect this purchase of shares on Schedule D as a capital gain/loss? Some replies to this post have said YES, others have said NO! Some replies have said the corporation just reflects this repurchase of shares as a distribution to the shareholder by sending the shareholder a 1099-DIV, and that no schedule D transaction is required. So I am not sure what to do from the corporation's perspective.
2. IF the corporation has to reflect this transaction on schedule D, how does the corporation do it? From the corporation's perspective, the corporation sold the shares in 2015 and purchased the shares back on December 13, 2022. That sounds like a typical "short sale", where date acquired and date sold are the same. Turbotax wont let me list a date sold as 2015 and a date acquired as 2022.
3. IF the corporation doesn't have to list this on schedule D, great!
So you see, my questions from the start are about how the CORPORATION reflects the liquidation, NOT how the shareholder will reflect the transaction on their individual tax return.
Thank you again
The dissolution of the C-Corp in your case is essentially a balance sheet event to the corporation. After recording all the income/expense for the year, the remaining value/balance is reported to the shareholder as a distribution of dividends. This sets the shareholder's account/balance to zero. The shareholder reports the distribution on Schedule D on Form 1040 individual tax return. The corporation reports no income or expense for the dissolution event.
Be sure to record all corporate income and expense activity for the year before calculating the final dividend distribution. Even though you may have net income/loss on the final corporate tax return, the balance sheet should be all zeros.
Thank you very much for the response, and I will follow your feedback accordingly! The corporation will report the liquidation as a dividend distribution (NOT a capital gain/loss), while the shareholder will report the distribution on Schedule D and report a gain/loss.
Hi. We're dissolving our corporation. I am issuing myself a 1099 Div with all the company pass through profits as the liquidation amount. Assume my initial investment was $0. As a corporation, I am filling out 1099 Div with Box 9. Then on my personal taxes, I am entering this 1099 Div. Do I need to also do a 1099 B and act as though I sold the stock? Does my corporation file a 1099 B? Do I, on my personals, enter a 1099 B?
As @coleen D3 stated earlier, the amount from Box 9 on that 1099DIV would be reported as a capital gain on a Sch D with the amount of Box 9 showing up as the sales price and the cost being 0 in your case because your initial investment was 0. Obviously, depending how long the period of time was from your initial investment( the date you started the company) till
the date you dissolved the company, you would categorize the gain as either short term or long term. See HERE . Liquidating Distributions Pg. 11.
I can't determine when this message was posted but there are a couple of statements in this post which may be misleading. A liquidating distribution can come from an S Corporation in which case a 1099-DIV is issued by the corporation. An S Corp does not issue a 1099-B as a broker does. The S Corp puts the liquidating distribution (sometimes called a dividend) in either Box 9 or Box 10 of the 1099-DIV depending on whether the distribution is in cash (Box 9) or in property (Box 10).
I posted the previous message and was replying to the original message in this thread which stated that Box 8 and Box 9 of the 1099-DIV were used. I see that my post was not linked to the original post. Sorry for the confusion.
Also, I should mention that a liquidating distribution is not taxable to an S Corp. It is taxable to the Shareholder if the distribution exceeds his basis in his stock. That would create a gain which is reportable on the Shareholder's Form 1040, Schedule D and on Form 8949.