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Retained Earnings in C Corp Complete Liquidation

Technical topics regarding tax preparation.
#1
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Small C Corporation is liquidating. 2 shareholders. Balance sheet has $200,000 cash on the asset side; Capital Stock of $50,000 and Retained earnings of $150,000 on the liability side. Other assets were all sold and Corp paid the appropriate taxes on the gains.

Shareholders split the $200,000 and liquidate. What happens to the retained earnings?

I see $75,000 gain to each shareholder ($100,000 cash - $25,000 cap stock). I've simplified a little, and assume the basis in their stock is equal to the $50,000 in that account. I wasn't there in the beginning and don't see how it could be different considering it's a C Corp and always has been.

There should be no dividend income because it's a complete liquidation; but again what happens to the Retained Earnings ?

Thanks
 

#2
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Poof! Disappears with the corporation.
 

#3
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There's no dividend because you've made a liquidating distribution. Tax is most likely the same, unless a shareholder has capital losses.
As far as a bookkeeping entry, retained earnings is still reduced to zero with the distribution.
~Captcook
 

#4
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make sure the corporation files Form 966 and a 1099-DIV reporting the distribution as a liquidating distribution
 

#5
Nilodop  
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There should be no dividend income because it's a complete liquidation; but again what happens to the Retained Earnings ?. See entry below.

Poof! Disappears with the corporation.. Puff the Magic Dragon.

As far as a bookkeeping entry, retained earnings is still reduced to zero with the distribution.
Entry
dr cap stock 50
dr r/e 150
cr cash
 


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