Most small business owners in trouble aren’t considering the tax consequences of their failing business. As their tax pro, you can help them plan ahead to avoid any unpleasant surprises when their S or C corporation liquidates.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Do liquidating distributions need to align with S corporation ownership percentages?
A: Yes, liquidating distributions must be made according to each shareholder’s percentage of stock ownership in the S corporation.
Q: Is Form 966, Corporate Dissolution or Liquidation, filed after the final tax return?
A: No, Form 966 must be filed within 30 days of adopting the plan of liquidation.
Q: When liquidating a C corporation that owns an office building, can the building be sold first to offset, or partially offset, the gain on the sale with the corporation’s net operating losses (NOLs)?
A: Yes, the C corporation can sell the building before making liquidating distributions. The gain from the sale of the building can be offset, or partially offset, by the corporation’s NOLs. Any remaining NOL that cannot be used on the final tax return will disappear upon liquidation.
Q: If a liquidating corporation has $30,000 in the bank and a $25,000 NOL, is the taxable distribution $5,000?
A: No, the liquidating distribution is $30,000. The NOL does not affect the amount reported as a liquidating distribution. The shareholder’s gain or loss from this liquidating distribution depends on their stock basis.
To learn more about liquidating S and C corporations, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.