Liquidating dividend s corporation
This provides the legal authorization to dissolve the corporation.
Record the vote in the meeting minutes which are added to formal corporate records.
Like C corporations, S corporations recognize no gain or loss on a distribution of cash to its shareholders.
To the extent that the shareholder has basis in the S corporation stock, distributions to the shareholder are tax free.
By contrast, liquidating distributions are treated as though the shareholder had sold her S corporation stock to the S corporation in exchange for the distribution from the S corporation. Note: Since the ordinary distribution rules do not apply, the S corporation’s accumulated earnings and profits or accumulated adjustments accounts do not determine the character of the distribution.
If the S corporation distributes appreciated property to a shareholder, the corporation must recognize gain as if the property were sold to the shareholder at fair market value.
Liquidating distributions are not governed by the normal S corporation distribution rules.
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.