S corp liquidating dividend

But before you start poking around the FAQ (a great place to dig deeper into subject matter), let me give you some background information on Subchapter S corporations.I make this point again and again at this website, but as you begin your research let me clear up a point of confusion: An S corporation is not really a corporation.

On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.The Internal Revenue Code uses four tests to make this distinction: To prevent gamesmanship among related parties, Congress has added another layer of rules that must be analyzed to determine if a distribution is a redemption.If you know you're ready to set up an S corporation, you can click on your state name in that list that runs along the left edge of the window.That'll take you to a page that describes the steps for setting up an S corporation in your state and provides an inexpensive downloadable kit you can purchase if you think you need help. Don't rush into the S corporation decision just yet.But all along, these entities were really just small corporations that used a set of tax accounting rules found in a subchapter of tax law. When state legislatures started allowing people to form new-and-improved business entities like limited liability companies, the IRS decided to allow these entities to also use the same "Subchapter S" accounting rules if they wanted.

Note: The Wyoming legislature was the first to create the laws that allowed for a limited liability company, and did so in 1977.The rules governing distributions from C corporations differ from the rules that apply to distributions from S corporations.To the extent that a distribution is made from the corporation’s earnings and profits, it is taxed to the shareholder as a dividend.[1] The portion of the distribution that is not considered a dividend is applied first to reduce the shareholder’s basis in the corporation’s stock.[2] Any remaining portion is treated as gain from the sale or exchange of property (capital gain).[3] Important Note: If a shareholder assumes a liability or takes property subject to a liability, the amount of the distribution is reduced by the amount of the liability.[4] Special rules also apply at the corporate level.[5] Special rules apply to distributions to a shareholder in exchange for the shareholder’s stock (redemptions).Tweet This website grew out of a graduate tax class I taught at Golden Gate University's tax program several years ago.The site provides you with all sorts of background on S corporations, including do-it-yourself downloadable kits.Over the next two decades, roughly, every other state as well as the District of Columbia followed suit.