Closing an S Corporation

[Tax Sleuth]

A taxpayer is the 100% owner of an LLC that has and continues to be taxed as an S Corporation. He is in the landscaping business and wants to close his business.


1. He has some remaining money in his business bank account. What are the different ways that he can withdraw this money? I realize that one possibility would be through his payroll. Is there perhaps a better way?

2. He also wants to keep some of his larger pieces of equipment to use personally. How will this likely affect his tax returns?

3. If he gives his customer list to someone without receiving payment for it, does this have to be reported in any way in regards to his tax returns?


I would greatly appreciate your assistance with these above questions.

[kathyc2]

1. If SH has equity cash can be distributed as dividend with no tax consequence.
2 Equipment should be "sold" to SH at FMV. If FMV is more than basis, there will be a gain. If FMV is less than basis, no loss recognized due to related party rules.
3. If there is no consideration received for customer list, there is nothing to report.

[Tax Sleuth]

It would be helpful to have some clarification in regards to the answer for 1. - What if the shareholder does not have any equity or enough to cover the cash distribution? What would likely be the tax consequence then of just withdrawing the rest of the money from his company's bank account?

[kathyc2]

It would be helpful to have some clarification in regards to the answer for 1. - What if the shareholder does not have any equity or enough to cover the cash distribution? What would likely be the tax consequence then of just withdrawing the rest of the money from his company's bank account?

If there are assets by definition there needs to be either offsetting liabilities or equity or both. If assets have been fully depreciated transferring them to SH at FMV will result in a gain and increase equity. If liabilities are bona fide business liabilities, SH assuming them will increase basis.

I realize you want a quick answer, but if you don't understand at least the basics of accounting/balance sheet/SH basis, you may want to consider not offering S-corp tax prep and advisement as a service you offer.

[TaxGuyBill]

What if the shareholder does not have any equity or enough to cover the cash distribution?

Is that possible for a 100% shareholder?

I don't really do much with corporate returns, but as far as I understand, if he has always been a 100% shareholder, there should be enough basis for the distribution. Or is my brain frozen and I'm completely wrong?