I have an S-Corp that closed in 2013 leaving an amount due to stockholders that was put into the company for cash flow. What happens to that? Can it be taken as a loss on the 1040? The S-Corp had a loss for the final year.

#1;shareholders are actually creditors of the S corp and they have a right to a repayment of that loan upon dissolution of the biz, unless it has been repaid previously. the most critical considerations involving s/h loans are whether they are considered loans or are treated as creating a new class of stock. This is important not only for tax purposes but also for the right of the shareholder to reclaim that loan upon dissolution.




#2; they generally cannot deduct s/h loans made to the biz on their personal tax returns. But, if the biz has been dissolved, and the loans cannot be repaid, these loans can be treated as bad debts on their personal tax returns with the limitation for capital loss deductions applied (ie maximum of $3k per year).
So they do not need to reclassify loans as additional paid in capital as they can deduct the loans unpaid as bad debt. A nonbusiness bad debt is reported as a short-term capital loss in Part 1 on Sch D, Form 1040 Your net capital loss is limited to $3kper year. This limit is $1,500 if you are married filing a separate return.