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S Corp started on 01/01/2018 with 2 shareholders. In March one withdrew 100% of his investment. S corp dissolved on 03/31/2018. How Can I prepare Schedule K-1? One? Two?

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Level 1
last updated ‎December 06, 2019 8:23 PM

I have a S Corp client with two shareholders. The business started on 01/01/2018. In March one of the shareholder became severely ill and withdrew entirely 100% of his investment. They dissolved their S Corp on 03/31/2018. The other shareholder accepted all net operating loss in 2018. How can we handle their Schedule K-1? Can I prepare only one Schedule K-1 for the shareholder with NOL?

Thank you.

Tao Phan

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Level 12
last updated ‎December 06, 2019 8:23 PM

Um, one shareholder can't just "accept" the loss.  The loss is divided between them based on their ownership (with two K-1s).

If the corporation was dissolved and completely ended in March 2018, do you realize the tax return is now quite late (with penalties)?

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Level 12
last updated ‎December 06, 2019 8:23 PM

Um, one shareholder can't just "accept" the loss.  The loss is divided between them based on their ownership (with two K-1s).

If the corporation was dissolved and completely ended in March 2018, do you realize the tax return is now quite late (with penalties)?

View solution in original post

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Level 1
last updated ‎December 06, 2019 8:23 PM
Thank you so much. But what about the first one who was severely ill, and withdrew his entirely 100% of his investment before dissolution (assumed each invested $100,000 and first one withdrew his $100,00 and the S Corp lost $10,000) ? I just try to help my client a proper and lawful way in compliance with tax law and rule. I never had this situation before. Thank again.
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Level 7
Level 7
last updated ‎December 06, 2019 8:23 PM
The one who withdrew would have a short term capital gain of $5K.  Assuming they had all losses before he withdrew as stock owner.  His basis would go down by the share of loss $5K.  But he received his initial equity back in full.
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Level 1
last updated ‎December 06, 2019 8:23 PM
Clearly got it. Thank you so much.
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Level 10
last updated ‎December 06, 2019 8:23 PM
I'm not sure the timing of the income/loss is relevant (but this isn't exactly in my wheelhouse).  Take a look at IRC 1377:

https://www.law.cornell.edu/uscode/text/26/1377

And regulations:

https://www.law.cornell.edu/cfr/text/26/1.1377-1

Basically the income/loss gets allocated pro rata per share per day so you'll get a different answer if the $100K withdrawal was on 3/1 vs. 3/30.

I think really this hinges on your use of the term "withdrew".  I assume this means "exchanged shares for cash" and not just "took a cash distribution" but follow the legal paperwork to arrive at your tax position.

Rick
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