Form 1099-DIV Needed for Deemed Corporate Liquidation?

Technical topics regarding tax preparation.
#1
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Does anyone know if Form 1099-DIV is required to be filed with Box 9 or 10 completed in the case of a deemed liquidation of an S Corp? Form 966 is not required as it specifically states so in the instructions to that form, but nothing on the Form 1099-DIV instructions.
 

#2
Nilodop  
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When you say "nothing in instructions", you mean nothing other thanthe Line 9 and 19 instructions, right? To me, they say file it.
Box 9. Cash Liquidation Distributions
Enter cash distributed as part of a liquidation.

Box 10. Noncash Liquidation Distributions
Enter noncash distributions made as part of a liquidation. Show the fair market value as of the date of distribution.
 

#3
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Well, in a deemed liquidation, there’s nothing being distributed per se. That’s why the question is being raised. If cash was actually distributed, in the case of an actual liquidation, it would be a no brainer. It’s after the filing due date for this form and so I don’t want to file it late, and the taxpayer incur a late filing fee, if it’s not required.
 

#4
JR1  
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I don't recall ever filing one...unless there were C corp earnings...
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#5
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Ok great. There were no prior C Corp earnings for this business. It has always been an S Corp. And considering it’s all going to be reported correctly on the individual tax return anyways, I might not file one either, just to avoid the unnecessary late filing fees. The form instructions need to be more specific.
 

#6
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I think that is how you get to write off the final basis in your stock.

Liquidating dividend goes to Schedule D that is why you get basis, if any.
Last edited by jon on 29-Mar-2023 8:14am, edited 1 time in total.
 

#7
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In an S, there is no final basis unless it was inherited or bought....it all zeroes out.
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#8
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Well, generally it would all zero out on the Form 1040, Schedule D. The stock basis wouldn’t necessarily have to be $0 upon liquidation. The distributions from liquidation would normally offset the remaining stock basis.

For example, say an S Corp had one shareholder with a beginning basis of $0 in the year of liquidation. The business generates $50,000 of ordinary income reportable on line 1 of the Schedule K-1. The shareholder gets a step up in basis of $50,000 too. Then on the Form 1040, Schedule D, the liquidating proceeds would be $50,000 and the cost basis would be $50,000, netting to $0 there.

But I just don’t know, because this is a “deemed liquidation” with no actual cash distribution, if the 1099-DIV would need to report this in box 9.
 

#9
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But in your example, there's 50k of cash, too. He takes distribution. Back to 0. It's one way to know you've got it all in there. Always 0 unless inherited or bought the stock.
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But “liquidating” distributions don’t reduce stock basis. Only “non-liquidating” distributions reduce stock basis. See §331(a) which states “amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock.” And thus the reason for having to file Form 1099-DIV with box 9 or 10 completed. Otherwise, where would this number be added on the individual tax return?
 

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For example, say an S Corp had one shareholder with a beginning basis of $0 in the year of liquidation. The business generates $50,000 of ordinary income reportable on line 1 of the Schedule K-1. The shareholder gets a step up in basis of $50,000 too. Then on the Form 1040, Schedule D, the liquidating proceeds would be $50,000 and the cost basis would be $50,000, netting to $0 there.

No. His K1 would also show a distribution. You’re just inviting trouble if you run an S-distribution (that isn’t treated as a Subchapter C dividend) through a 1099-DIV.
 

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Agree to disagree. Took a CPE class recently that talks about this specifically and watched it again this morning to make sure my understanding was correct. The instructor (who teaches a lot of tax update classes) went through an example of a liquidation, first as to how to report it if the business was organized as a C Corp and again on how to report it as if it was an S Corp. Under both scenarios, he specifically stated that the liquidating proceeds were to go on lines 9 and 10 of the Form 1099-DIV. The company is “buying back” its stock upon liquidation so the liquidating proceeds go on Schedule D and the stepped up S Corp basis offsets it, unless the fair market value of the assets received is different than the stock basis.

Here is a link to the class: https://my-cpe.com/self-study/s-corporation---form-1120s---formation-to-liquidation

There are also other discussion boards online that talk about this. Here is one: https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/is-a-1099-div-necessary-to-report-a-liquidating-distribution/00/223003

So I’m confident how it needs to be reported on the return. But one thing that this class did not clarify is whether the Form 1099-DIV needs to be filed in the case of a “deemed” liquidation, since there is no actual distribution of cash or other property.
 

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What’s driving the “deemed” liquidation?
 

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Agree to disagree.


I get it. All I said is that you’re inviting trouble and part of that is worrying about something that is a non-issue. If the “payments made” by the corp are posted to Distributions, then don’t issue a 1099-DIV. All accounting will take place through K1 reporting and basis calculations. If you post the corporate payments to Treasury Stock, which then gets closed to Retained Earnings, then feel free to issue a 1099-DIV, although I wouldn’t. Most practitioners would just footnote the corporate payments on the K1 if they don’t othewise show up as distributions. In the real world, it happens both ways, but with liquidations, it all gets run through Distributions with no footnotes. And in the real world, no one issues 1099-DIV’s for S-corp liquidation/redemption transactions. One thing you have to realize here is that how we report things at the 1040 level is largely dependent on how the things are accounted for on the corporate books. And those preparers are often different.

We’ve had plenty of discussions on this issue in the past.
But one thing that this class did not clarify is whether the Form 1099-DIV needs to be filed in the case of a “deemed” liquidation, since there is no actual distribution of cash or other property.


It’s a moot question in my mind, as per the above. Make your journal entries, show the (deemed) distributions on the return/K1’s and move along. That’s a real world answer, free of charge, that doesn’t require any CPE.

Then on the Form 1040, Schedule D, the liquidating proceeds would be $50,000 and the cost basis would be $50,000, netting to $0 there.


Yeah, and it would net to zero if you just showed the $50k as a Distribution on the K1 and forgot about 1099-DIV/F8949 reporting.
 

#15
Nilodop  
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The redundancy of the 1099 DIV as noted by Jeff-Ohio is correct, but I guess IRS could try to impose the $200-per form penalty and you'd need to explain.
 

#16
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HenryDavid wrote:What’s driving the “deemed” liquidation?


The S Corp election was no longer generating a tax benefit, so the decision was made to terminate the S election and re-organize the business as a partnership going forward. So the business itself is a going concern, but no actual distributions were made upon termination of the S election.


Appreciate the advice from everyone. From a tax perspective, it’s not going to make a difference. So it’s just a reporting issue. I don’t know that I would say no one issues 1099-DIV’s for S Corp liquidation/redemption transactions. It might be relatively few, but if that’s how the IRS intends for it to be reported, then I will follow the guidance rather than the crowd.

But again, thank you all for your contribution to this post.
 

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It might be relatively few, but if that’s how the IRS intends for it to be reported, then I will follow the guidance rather than the crowd.


I figured you’d say something like that, given your inexperience. Now go explain to the client that his bill will be higher because you over-worked the case.

But I am curious: How’d you value the goodwill? Now that is something the IRS would be interested in.
 

#18
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Wasn’t aware that 11 years in the accounting industry was considered “inexperienced”. But I’m going to ignore the rude comment.

So because I don’t agree with you, that makes me wrong? I have no issue with how you would report this. Either way achieves the same tax result. But based on what I’ve researched, there’s nothing you’ve said that’s convinced me that’s not the proper way to report this liquidation on the return.
 

#19
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to counter slightly....

1. a client that complains about a bill for the proper reporting (on a 1099-DIV) isn't a great client. In this situation, I've prepared a 1099-DIV (especially when there is an inside/outside basis difference, for..."optical" reasons...). I'd certainly bill for all the services performed and not give it a second thought.

2. actually, 11 years "in the accounting industry" may be comparatively light... Jeff-Ohio's comment regarding inexperience may be justified based on the OP ("inexperience" may mean "the question indicates you haven't dealt with this much in the past...")
 

#20
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HenryDavid wrote:
2. actually, 11 years "in the accounting industry" may be comparatively light... Jeff-Ohio's comment regarding inexperience may be justified based on the OP ("inexperience" may mean "the question indicates you haven't dealt with this much in the past...")


You can say that about any profession. It’s easy for someone to make such a remark that has 30 years + of experience, but statements like that are extremely arrogant and prideful. And no matter how much accounting experience I had, I would never deliberately demean another CPA by calling them “inexperienced”.

And this whole concept of experience is irrelevant for this discussion anyways. Especially considering that not even the “experienced” folks can agree on whether a Form 1099-DIV is indeed required. Some say they have filed it. Some say they haven’t. It all seems to be more opinion based than anything.
 

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