How to do a final return for an s-corp after the death of one of the s-corp shareholders?

[aqq2bus]

An s corp had two 50% shareholders. One shareholder died at the end of the year 2022 (mid December). The shareholders were unrelated to each other. There was only one asset (car) owned by the corporation worth about 15,000.00 and some money in the bank account. The living shareholder was still working in the corporation after the death of his partner so the corporation still had income in 2023.  When should the final return for the s-corp be filed (2022 or 2023) and how to alocate the income between the two shareholders?

[IRonMaN]

Just because a shareholder dies doesn't mean that they dragged the corporation to the grave with them.  As long as there is a living, breathing shareholder, the corporation is still alive.  But you didn't mention what happened to the deceased shareholder's shares.  Did the corporation buy the shares back or does the other shareholder have a new shareholder in the form of one of the deceased family members?

[BobKamman]

But what if there is just one shareholder, and it's a PC and the survivor does not have a professional license?  Haven't started my research on that one yet.  

[IRonMaN]

But that isn't a tax question, that is a legal question.  I leave those types of questions to lawyers. 😉

[aqq2bus]

Thank you for your reply. The deceased shareholder was unmarried. There was no will. The corporation didn't officially buy the stocks. The deceased shareholder's mother received a court paper that she is the first beneficiary, then the siblings and then his father. (I think it's called small estate affidavit, but I am not sure; I saw this paper once, but the mother didn't let me to make a copy of it). Does the mother automatically becomes the shareholder?  Some other info: I know that the deceased shareholder's mother keeps the the title to the company's car, but as of today the car was not sold and it is still in the company's name. After the death of the partner, the living shareholder withdrew 12000 from the company's bank account to cover the funeral costs. The relationship between the living shareholder and his partner's mother is bad and they don't talk. The living shareholder needs to file his taxes asap. Any help is appreciated.       

[BobKamman]

I don't know of any state where the laws of intestate succession give everything to the mother if the father is still alive.  So I'm not surprised that she doesn't want to share any documents.  When you say she keeps the title to the car, do you mean she has the piece of paper that says it is titled to the corporation?  The corporation should be able to get a duplicate title.  The funeral expenses take priority over distributions to heirs, so it looks like time to consult a lawyer.  

[TaxGuyBill]

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@aqq2bus wrote:

The living shareholder needs to file his taxes asap.

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It sounds like he has procrastinated for six months, so don't let him pressure you to hurry.

He withdrew $12,000 from the corporation for funeral costs?  How is that being categorized?

The 2022 return is not a final return because the corporation is still running.  It sounds like your client was owned 50% for the full year, and other 50% was split between the other person (until mid-December) and that other person's Estate (mid-December to end of year).

[IRonMaN]

"He withdrew $12,000 from the corporation for funeral costs?  How is that being categorized?"

I'm guessing it is being categorized as a sunk cost ----------- sunk about 6 feet under.

[TaxGuyBill]

[aqq2bus]

Can somehow this 12000 be treated as distribution? 

[aqq2bus]

How do I prepare schedule k-1 for an estate? What information is needed? Should the estate provide me  with a tax ID number?

[IRonMaN]

The K-1 shouldn’t be any different than an individual.  You just need to get the ID number 

[qbteachmt]

"I know that the deceased shareholder's mother keeps the the title to the company's car, but as of today the car was not sold and it is still in the company's name. After the death of the partner, the living shareholder withdrew 12000 from the company's bank account to cover the funeral costs."

That's called Theft. Both activities are theft = corporate assets for personal gain or use.

Everyone needs to be told that the corporation is its own entity. They are treating that as an estate, but the corporation is not part of the estate. The deceased's ownership of Shares is all that is in the estate.

You don't wholly absorb a corporation into a human. You still have a separate entity. If everyone who owns Ford stock were to die, Ford still exists.

[MaryMatt]

I have a related question.  My sole shareholder left his estate to his spouse.  It seems the new shareholder needs to elect the Sub S treatment, but I am not sure how to do that.  Do you just use 2553 and show the new shareholder as electing?  Also, do I elect for the estate (she is executor) as well as the new (spouse) shareholder.  It is coming up on 2 and a half months since date of death.

[IRonMaN]

A change in shareholders doesn't affect the corporation's sub S status.

[MaryMatt]

so just carry on.  Thanks for the quick reply