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Is a 1099-Div necessary to report a liquidating distribution from an S-Corp

Forum|Forum|4 years ago
May 9, 2022
2 replies
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I have a question for the community. I have a situation where there is going to be a liquidating distribution from an S-Corp to it's sole shareholder. It is now May and would issuing a 1099-Div possibly create a penalty. And I am asking if anybody has experienced accounting for a liquidating distribution by just putting it on Schedule D without going through the formality of issuing a 1099-Div. Also does anybody know if the IRS actually looks for the 1099-Div when an S-Corp dissolves. I would like to hear other's opinions on this.

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Best answer by qbteachmt

Okay, so the facts include that in 2021, the tax year you are preparing, they took more than basis and also this will be the final K-1 and 1120S? Or, is there going to be a 2022 short year return to close the entity? They dissolved and turned in shares, etc, in 2021? Or, they did not "close" this properly in 2021? You used the word "liquidating" so first, the business needs to have been wrapped up and assets sold or distributed, having gain or loss within the entity, etc. That leads you to the final K-1 and basis. That helps determine if there is liquidation gain or loss to the individual.

I found this reference that has a nice, plain, listing as reference:

https://ttlc.intuit.com/community/business-taxes/discussion/do-you-show-final-liquidating-distributions-by-an-s-corp-on-sch-k-and-k-1-line-16d-or-on-1099-div/00/65200

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TaxGuyBill

Level 15

@jskouberdis wrote:

issuing a 1099-Div possibly create a penalty.

without going through the formality of issuing a 1099-Div.

if the IRS actually looks for the 1099-Div

It sounds like you know what is required. I hope you are not asking if it is okay to not file a required form to avoid a penalty.

J

jskouberdisAuthor

Level 5

My question was after I have done everything and all is done correct have you ever had the experience of the IRS nit picking that a 1099 for the liquidating distribution was missed. Why create a penalty for the business owner. And I only do his accounting once a year so I could not fiqure out what the amount was earlier in the year.

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TaxGuyBill

Level 15

@jskouberdis wrote:

My question was after I have done everything and all is done correct

But you have NOT done everything and all is NOT correct. As you seem to know, a 1099-DIV is required.

qbteachmt

Level 15

S Corp shareholders do not get a 1099 from their own entity. They get a K-1.

S Corps do not pay dividends. S Corp shareholders take Distributions. Distribution in excess of basis is not dividends.

You seem to be describing that there might be Distribution in excess of equity, which would be after the tax return that results in the computation of income and other pass throughs.

So, your shareholder might have capital gain, after all the rest is resolved, offset, sold off, etc.

If you have not closed an S Corp before, you might get someone to mentor you on this.

Don't yell at us; we're volunteers

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TaxGuyBill

Level 15

@qbteachmt wrote:

S Corp shareholders do not get a 1099 from their own entity.

Liquidating distributions are reported on a 1099-DIV.

qbteachmt

Level 15

"Liquidating distributions are reported on a 1099-DIV."

What I was trying to understand is what was dealt with inside of the business vs just calling it quits vs taking the final money, would be different things. Until there is the tax year wrap up and the K-1, you don't know that shareholder's final position.

Don't yell at us; we're volunteers

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