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Liquidation of assets occurs once your S corporation has filed its dissolution paperwork with your state’s business registration office, frequently the secretary of state or similar state agency.It may take some time to close down your business and dispose of all your business assets.This means that you may have a gain or loss to report on your return.Gains and losses are calculated as the difference between your tax basis in the stock exchanged and the overall fair market value of the distribution you receive, which is treated as the gross proceeds of the deemed stock sale.When a corporation liquidates all of its assets to shareholders, it generally recognizes a taxable gain or loss, though a number of rules exist that limit a corporation's ability to report losses.The corporation is also treated as if the property is sold at fair market value.And if the plan of liquidation includes the distribution of property that's worth less than the outstanding debt that a shareholder assumes responsibility for, it's treated as a taxable gain to the corporation.
For example, you could include a provision stating only corporate officers can vote for a liquidation plan or that the corporation must hold a meeting of shareholders before the liquidation plan is approved.
Depending on the type of business you operate, your corporation may have a large amount of money tied up in non-liquid assets such as real estate, inventory or equipment.
These assets must be inventoried and appraised as part of the liquidation process since you cannot distribute the corporation’s assets without knowing how much such assets are worth.
After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning. "Tax Treatment of Debt Distributed to Shareholders in a Corporate Liquidation" accessed August 31, 2019.
In theory, your corporation could last forever, but in reality, many corporations eventually cease to exist.