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Old 04-15-2012, 04:39 PM
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C-Corp dissolution - how to report the cash distribution on Individual tax return 1040

Hi, my wife and I were the stock holders in a C-corp which was 5 years old and we filed a FINAL tax return after it ceased all operations. The CPA filed the final tax return with the following amounts:
Schedule L:
Line 15= $11,712
Line 22a = $0
Line 22b=$0
Line 25=$11,712

Schedule M-2;
Line 5a (Cash distribution): $11,712
Line 8 (Balance @end of year): $0

The CPA told me that we can issue 1099-DIV and report this money as dividend on personal tax 1040. But, I am reading different things like we need to report it as capital gains and not dividends.

Can you please let me know if I need to report as Capital Gains or Dividends? Also, what forms do I need to submit and use? If it's capital gains and as the C-Corp existed for 5 years, is it considered as Long Term capital gains? Also, for some reason, my CPA didn't show any stock value and showed it as $0, though I invested about $5,000 when I started the company. Don't know if there is a way to show it now some how as it was over 5 years ago.

If it's just capital gains tax, do I need to show it in Schedule D and show the sale of the stock as "$11,712" and show that this stock was bought for "$0.00" so that the entire amount becomes the gains?

Greatly appreciate any help in this regard.



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Old 04-20-2012, 10:29 PM
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Join Date: Oct 2010
Posts: 5,231
“Can you please let me know if I need to report as Capital Gains or Dividends?”--->I guess it is dividends since the balance on M2 line 8 is $0. Your r/e on Sch L line 25 is $11,712(unappropriated r/e) and is reported on Sch M2 line 1/4.You need to enter the value of beginning retained earnings on line 1 of Sch M-2. This value should correspond to line 25 of Schedule L$11,712, as you said.As the net income or loss per the company's books is $0,I guess, yu need to report $0 on line 2 of Sch M2. This value should correspond to line 1 of Schedule M-1. The company's net income or loss per the books may differ from the net income or loss per the tax return. This can happen if the company reports income on an accrual basis for the books but on a cash basis for the tax return.So, you need to report $11,712 on line 4.As the C corp distributed $11,712, div reported on Sch M2 line 5a, the balance at the end of the year on Sch M2 is $0. Schedule M-2 of corporate tax return Form 1120 is used to reconcile a company's beginning unappropriated retained earnings to a company's ending unappropriated retained earnings for the tax year.
“ Also, what forms do I need to submit and use?”---> Form 1099-DIV is used to report distributions such as dividends or capital gains that were paid on stock and liquidation distributions.Any business that has paid dividends on stock of $10 or more, withheld foreign or federal tax on dividends or has paid $600 or more as part of a liquidation must file Form 1099-DIV..
“ If it's capital gains and as the C-Corp existed for 5 years, is it considered as Long Term capital gains? “--->As described above.
“Also, for some reason, my CPA didn't show any stock value and showed it as $0, though I invested about $5,000 when I started the company. Don't know if there is a way to show it now some how as it was over 5 years ago.If it's just capital gains tax, do I need to show it in Schedule D and show the sale of the stock as "$11,712" and show that this stock was bought for "$0.00" so that the entire amount becomes the gains?”-You may contact your stock broker;however, you can't rely on your broker to track cost basis for you, either. Some don't track cost basis correctly. Even more likely, if you ever transfer your brokerage account to another firm, your cost basis most likely will be lost. As long as the stock still trade and you know the date you bought the stock, If so, you're in luck. You can use USATODAY.com's free historical price quote lookup, you can pull up a stock's high, low and closing price on that day. Here's General Electric , for example. If you want to look up prices for another stock, just put the name or ticker in the Get a Quote box on that page, and click on the Historial Quotes tab when the new stock comes up.



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