For example, if an S corporation with an April 30 year end makes its final liquidating distribution on October 31, 2007, the shareholders will report 18 months of passthrough items on their 2007 returns. • Section 1366 generally provides that S corporation shareholders report their pro rata share of the S corporation’s tax items on their personal returns (Schedule K-1). • Section 1367 provides that the S corporation shareholders get a basis adjustment for their pro rata share of the S corporation’s tax items. Tax Consequences of Liquidation. Liquidating distributions are not governed by the normal S corporation distribution rules. Instead, liquidation of an S corporation is governed by the same rules that apply to liquidation of a C corporation. The S corporation reports the gain on the final S corporation return, which flows-through to the old shareholder(s). There is then a deemed distribution of the sales price in liquidation of the S corp. Note, there is no one-day return in an S corporation IRC section 338(h)(10) election. Even if S corporation were owned 50-50 between spouses in a non-community property state, the S corporation is a bad result owning land. Subscribe to Blog Get timely updates about taxation, accounting, succession planning, and other issues that are unique to farmers and agribusiness processors. Dissolving any corporation, including an S corporation, requires filing the proper forms with the same state and federal agencies that you used to start the corporation. Under Sec. 331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P). the sale of the S-Corporation's assets for income tax purposes. The primary difference between a sale of an S-Corporation's assets and a sale of the S-Corporation's stock with an IRC §338(h)(10) election is that the latter is treated as a stock sale for purposes of the sales and use tax, In theory, your corporation could last forever, but in reality, many corporations eventually cease to exist. Part of dissolving your corporation involves liquidating corporate assets since the corporation can’t own assets when it is no longer in business. Liquidating the corporation's assets is a large part of that process. It involves valuing the company's tangible and intangible property, preparing it for sale and choosing the best sales method.