When a company goes out of the business and the company assets are liquidated, money is returned to investors per the capital structure of the business.If money is left after paying bondholders, stockholders are paid a portion of the money.I’m a CPA, and my best tax advice comes from you guys…NOT the Tax Adviser!
The liquidation of the S corporation, even if it owned only land, triggers recognition of gain for Daughter.
An LLC is much more efficient, and can be structured to reduce SE tax, but then we have government payment limitations.
Small business owners often wonder whether it’s acceptable to make disproportionate distributions to a shareholder of an S Corporation.
The following example paints a picture of a situation where business owners may consider this possibility: Tom and Jeff own an S Corporation called TJ Engineering as equal shareholders (i.e.
For example, if the S corporation stock passes through an estate, or if there has been a stock purchase for fair market value at a time when the stock had increased significantly in value compared to the tax basis in the underlying assets, outside tax basis can easily be substantially higher than inside tax basis.
Assume the S corporation agrees to sell its assets to a buyer.In this case (where outside tax basis is significantly higher than inside tax basis), it is critically important that the asset sale AND the liquidation of the S corporation both occur in the same tax year (generally the same calendar year).This is because the liquidation transaction will generate a substantial capital loss that offsets a portion (and sometimes all) of the capital gain recognized on the sale of S corporation assets.Well, the simple answer is no, but there are possibilities for “timing differences” between distributions.First, let’s explain why disproportionate distributions would be disallowed.Find out about major agribusiness events and how to comply with new laws that affect your business.