I have an S Corp client that is liquidating. There are no assets except for a loan receivable (from shareholder) and a loan payable (from shareholder). Net effect of the two loans is a $1950 loan receivable. The receivable loan is not being paid back and was posted as a distribution.
Stock basis before above distribution was $1000 and RE is $950= $1950 (same total of the distribution noted above). So now basis is 0. Non deductible expenses for 2008 posted on books= $350. Deductible expenses = $50 (although not deductible as basis is now 0).
My questions: Is the $1000 stock basis, taken as a distribution, a return of capital? Or is it a taxable capital gains because it is a distribution in excess of RE? Are the non deductible expenses subject to capital gains tax because they are over basis?
Any help would be greatly appreciated.
Stock basis before above distribution was $1000 and RE is $950= $1950 (same total of the distribution noted above). So now basis is 0. Non deductible expenses for 2008 posted on books= $350. Deductible expenses = $50 (although not deductible as basis is now 0).
My questions: Is the $1000 stock basis, taken as a distribution, a return of capital? Or is it a taxable capital gains because it is a distribution in excess of RE? Are the non deductible expenses subject to capital gains tax because they are over basis?
Any help would be greatly appreciated.