The cash and noncash liquidation distributions are generated when a corporation is partially or completely liquidated, and represent a return in capital investment. This amount should be treated as capital gain to the extent that it exceeds the initial basis of the investment. Basis of the investment must be tracked by the taxpayer. Currently, ProConnect Tax doesn't have a specific input field for 1099-DIV boxes 8 and 9.
Follow these steps to enter 1099-DIV boxes 8 and 9:
- Go to the Input Return tab.
- Select Income > Dispositions (Sch D, etc.) > then Schedule D/4797/etc. from the left menu to enter the transaction.
- Select the Details button to expand the input.
- Enter the amount shown in Box 8 or Box 9 as the Sales price.
- Enter the known basis amount as the Cost or basis.
- Enter the date of the basis investment, if known, in Date acquired, or enter a negative date for various.
- Enter the date the corporation was liquidated as Date sold or enter a negative date for various.
- If necessary, enter 1 or 2 in the 1=short-term, 2=long-term [Override] field.
For additional guidance from the IRS, refer to Pub 550, Investment Income and Expenses, pages 21, 22.
Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments.
- You'll receive a Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in Box 8 or 9. Any liquidating distribution you receive isn't taxable to you until you've recovered the basis of your stock.
- After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you've held the stock.
Stock acquired at different times
If you acquire stock in the same corporation in more than one transaction, you own more than one block of stock in the corporation. If you receive distributions from the corporation in complete liquidation, you must divide the distribution among the blocks of stock you own in the following proportion:
- The number of shares in that block over the total number of shares you own.
- Divide distributions in partial liquidation among that part of the stock that is redeemed in the partial liquidation.
- After the basis of a block of stock is reduced to zero, you must report the part of any later distribution for that block as a capital gain.
Distributions less than basis
If the total liquidating distributions you receive are less than the basis of your stock, you may have a capital loss. You can report a capital loss only after you've received the final distribution in liquidation that results in the redemption or cancelation of the stock. Whether you report the loss as a long-term or short-term capital loss depends on how long you held the stock.