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Liquidating corporation liabilities

The shareholder’s basis is decreased (but not below zero) by the shareholder’s share of the S corporation’s items of loss and deduction, nondeductible expenses (except expenses that are not chargeable to the capital account), depletion deduction for oil and gas property, and distributions to the shareholder that are not made from accumulated earnings and profits.

This helps ensure that the shareholder only benefits once from reductions in income earned by the S corporation.

Like C corporations, S corporations do not recognize any gain or loss on a distribution of cash to its shareholders.

Instead, liquidation of an S corporation is governed by the same rules that apply to liquidation of a C corporation.The tax treatment of liquidating distributions of debt to shareholders impacts the amount of gain or loss shareholders report on their tax returns.Liquidating distributions also has tax implications for the corporation that may need to be reported to the Internal Revenue Service on the company's final return.If you own shares in a corporation that makes liquidating distributions to you, the IRS treats the transaction as a sale or exchange of your stock.This means that you may have a gain or loss to report on your return.Under these circumstances, you'll calculate your gain or loss using ,000 -- ,000 in cash plus the ,000 debt -- as the proceeds received in exchange for your stock.But you also get the higher ,000 tax basis in the vehicle, which may give you a larger capital loss if you sell it.Distributions to the shareholder are not included in the shareholder’s gross income to the extent that the distribution does not exceed the shareholder’s basis in the stock.Because the tax consequences of distributions depend on the shareholder’s basis, it is important to keep up with changes in the shareholder’s basis over time.Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.When you assume corporate liabilities or receive property with an outstanding debt balance, you reduce the gross proceeds by the total amount of debt included in your liquidating distribution.


  1. Corporate liquidation results in. If you own shares in a corporation that makes liquidating. When you assume corporate liabilities or receive.

  2. The tax consequences of distributions from S corporations are intended to tax S corporation income only once, when it is earned.

  3. Understanding the Tax Consequences of Liquidation to. corporate liabilities or receives. held in a liquidating corporation is adjusted for.

  4. Part of dissolving your corporation involves liquidating corporate assets since the corporation can’t own assets when it is no longer in business.

  5. The company was incorporated as a corporation. and has general powers to enable rights and liabilities of. In business terms this will mean liquidating a.

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