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

[jskouberdis]

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.

[TaxGuyBill]

@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

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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.

[qbteachmt]

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.

[TaxGuyBill]

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@qbteachmt wrote:

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

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Liquidating distributions are reported on a 1099-DIV.

[jskouberdis]

I think you missunderstood my question.  If you look at box 9 and 10 they are cash and non cash liquidating distributions.  This is when your company dissolves and passes out what is left in the company.  My question was if I picked everything up correctly when the company dissolved would the IRS make an issue if I did not issue a 1099 for the liquidating distribution.

[jskouberdis]

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.

[TaxGuyBill]

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@jskouberdis wrote:

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

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

[qbteachmt · Accepted solution]

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-distributi...

[qbteachmt]

"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.

[jskouberdis]

Yes that is a very concise article.  2021 will be the final year of the company and the lone shareholder will get assets in access of their basis.  My question is does the IRS from your experience look for the 1099-Div and make an issue of it?  I will be reporting everything correctly but I do not want to incur a penalty for late filing the 1099.  Is the 1099-Div a necessity.

[TaxGuyBill]

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@jskouberdis wrote:

Is the 1099-Div a necessity.

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The law says it is a necessity.  A potential penalty does not change that.

Are you tax professional?