Does anyone know how to do a liquidating distribution for a C Corp? I have a client who sold his 'asset's and I sold them via the C Corp wtih profit flowing through on 1120 this year. But now I am getting ready to dissolve C Corp, assets remain were Cash, AR Officers, Common Stock and retained earnings. I'm not sure what to do next?
There should be no further tax effect to the corporation, since the assets are worth exactly what's on the books.
If the s\h has the cash, have him repay the loan to the corp and then distribute the cash to him. If he doesn't have cash, you can distribute the receivable to him - same treatment in his individual return, but I prefer the first option for a better trail. I try to make sure all expenses are considered in the final return - federal and state income tax, liquidation fees, my fee - and have the client write the final checks before he makes his own final distribution.
Distribution to extent of capital stock is basis to the shareholder. Then dist to extent of RE is dividend income - assume it would be qualified so subject to cap gains rate. Finally, remaining distribution is liquidating dividend.
Don't forget to prepare a 1099-DIV for year of liquidation. Final 1120 can show a zero balance sheet.
