S corp liquidating distributions
PLR 201236003 Over the years, the IRS has interpreted the disproportionate distribution rules fairly liberally.
Last Friday, in PLR 201236003, an S corporation had made disproportionate distributions for what appears to have been several years.
So in summary, a single distribution that is not made in accordance with shareholders’ ownership interests is not a cataclysmic event.
However, the distributions should be corrected as soon as possible, and I would caution you to not make a habit of making disproportionate distributions, or you may well run afoul of Section 1361.
Before you start liquidating corporate assets and closing financial accounts, hold a board meeting to get an approval vote to dissolve the business from the board of directors.
For a business with only one director, this seems moot, but should still be memorialized in minutes with the date of the motion to dissolve, anyone present to vote and the result of the vote.
So how tolerant is Congress and the IRS when a disproportionate distribution is made but the underlying stock confers identical rights upon the shareholders? S distributes ,000 to A in the current year, but does not distribute ,000 to B until one year later.
Liquidating divs related to E& P go on a 1099-DIV.
Once you file the articles of dissolution, most states require publication of the dissolution in local newspapers' "public notice" section.
This allows any creditors to make a claim against the company before assets are liquidated and distributed. Once the articles of dissolution are approved, begin the liquidation of assets. Final payroll is the top priority followed by all other debts.
Any distribution in excess of basis for an S that's always been an S is automatically capital gains.' data-inline-edit-type='wysiwyg' data-inline-edit-url='/answers/529988' id='inline_edit_answer_529988_body' Liquidating divs related to E&P go on a 1099-DIV.
For an S that's always been an S, they don't go on a 1099-DIV.
Answer: This is a commonly misunderstood area of tax law. Section 1.1361-1(l)(1) provide, in part, that “a corporation that has more than one class of stock does not qualify as a small business corporation.” The regulations go on to provide that a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds.