Question
S Corporation Earnings vs. C Corporation Losses in Liquidation
The company operated as an S corporation through 2019 and converted to a C corporation in 2020. It has approximately $300,000 of undistributed earnings from its S corporation periods. Since the conversion, the C corporation has incurred losses, resulting in an accumulated deficit of approximately $200,000 as of the end of 2025.
The shareholder is planning to dissolve the corporation. The company’s only remaining asset is cash in the bank.
In the event of liquidation, would the taxable dividend amount be $100,000 (i.e., $300,000 less $200,000)?
