| “1. Can I just net these out to zero, or will the loan writeoff generate income for the corp?”----->I guess so it depends on the amount of your loan/stock basis. You can write-off the loan and generate income(loss) for the S corp. As a shareholder of the S corp, you loaned money to the corporation. As you did this, you have a right to a repayment of that loan upon dissolution of the corporation, if it has not been repaid previously. Shareholder's making loans to their S-Corp may take a tax deduction in the current year for losses in excess of their stock basis, but only to the extent they have loan basis I mean adjusted basis in S-Corp debt at the end of the year(ordinary loss reduces your stock basis and balance in your S corp AAA acct. Your S corp keeps track of all its icome/loss in AAA. Your AAA balnce can never be below zero due to regular ditribution ). As long as you, the shareholder, had both an equity investment and advanced a loan to the company, then you must restore your loan basis before restoring your stock basis. When your S corp terminates, unless your distribution exceeds the balance of AAA, you do not need to pay tax on the distribution.
One other "S corporation liquidation" wrinkle should be mentioned: Any assets that your S Corp owns at the time of liquidation will in effect be distributed to you, the sole shareholder. If an asset's FMV exceeds its depreciated (adjusted)basis, you will unfortunately need to show a gain on the distribution of the asset to you on the final corporate tax return. In other words, if you purchased a $2,000 laptop computer that you fully depreciated and then you distribute the laptop to yourself as shareholder, you need to book a gain on the distribution. The gain equals the FMV of the laptop. You don't want to distribute assets to shareholder, you, if the assets' depreciated basis exceeds the FMV. For assets carried at a book value in excess of FMV, you want to have the S corp sell the assets to generate the loss.
“2. If the answer to #1 is that it'll generate income, can I file amended returns for prior years and recategorize the loans as paid-in capital? That's really what it was.”----->I guess it also depends; some suggest to post items to Paid in capital in lieu of loans from s/h and repayments as distributions instead of a reduction in lieu of loans from s/h so that they do not have to impute interest . However, APIC must stay in the corp until liquidation. You take a distribution from your S-corp when retained earnings is positive, NOT negative(even though some s/h took a distribution from his S-corp when retained earnings was negative) . Distributions can use up basis in the AAA usually equals retained earnings but only if always an S Corp, then basis in APIC and Stock. You don't normally book the reductions to APIC or stock and post the whole amount distributed to retained earnings. As long as those 3 accounts still net to a positive number you are ok. If that goes negative you must have a loan from shareholder in order to deduct tax losses or distributions from. APIC is not used for distributions. Once a dollar amt is in there it does not get reduced. It's pretty much frozen it time. The AAA section of the R/E is used. Then go to the shareholder loan acct. If there is no shareholder loan acct, you have a cap gain. I guess you need to contact IRS agent for more info in detail.
“3. If I do #2, what would the final entries be to dissolve the corp?”------> Debits the cash account and credits the APIC account and the common stock account. In accounting terminology, debiting the cash account which is an asset , additional cash maybe from positive r/e, means increasing company money. This opposite is true in the banking industry, where debiting an account means a reduction in customer accounts.
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