S-corp with negative retained earnings when changed from C- to S-

Forum|Forum|1 year ago
January 27, 2025
1 reply
11 views

S-corp is terminated in 2024. This S-corp had negative retained earnings (-$4200) when it changed from C-corp to S-corp.

At dissolution, S-corp distributed $235 to shareholder (the only cash asset left). After this distribution, shareholder still has $4200 basis remained.

My questions,

1. Should S-corp issue Form 10699-Div for the $235 distribution when company terminated.
2. Since shareholder still has $4200 basis remained, can he claims capital loss of $4200 on Form 1040, Sch D?

Thank you.

Lacerte Tax

This topic has been closed for replies.

Best answer by IRonMaN

What the C corp had in losses didn't affect the shareholder's basis. You are trying to treat C corp shareholder basis like an S corp. How much did your client originally put into the corporation as equity? That's your starting point and then you add and subtract subsequent income and losses as an S corp.

IRonMaN

Level 15

Are you sure he had $4200 basis remaining? Wouldn't his basis be what he originally paid for the C corp stock plus and minus income and losses during the S corp period?

Slava Ukraini!

H

hgtcAuthor

Level 5

Yes.

That $4200 was 1st year C-corp losses before company changed to S-corp on 2nd year. He had losses on most years. In 2024, company dissolved (also net losses in 2024; no assets other than bank account). After paying all liabilities, company only have $235 left in the bank. So, shareholder received $235 distribution.

Can he claim $4200 capital losses on his Form 1040?

IRonMaNAnswer

Level 15

What the C corp had in losses didn't affect the shareholder's basis. You are trying to treat C corp shareholder basis like an S corp. How much did your client originally put into the corporation as equity? That's your starting point and then you add and subtract subsequent income and losses as an S corp.

Slava Ukraini!

Sign up

Login with SSO

Let's get you signed in

Login with SSO

Scanning file for viruses.

This file cannot be downloaded