Dissolution Question

[Unregistered]

3 shareholders of a C corp.
2 minority shareholders take unauthorized funds
for personal use. Majority shareholder says no-no.
Dissolves corp by majority vote
Each shareholder contributed 5K at start-up.
Total corp life = 20 months.
Total unauthorized funds taken = 20K each.
Question: Can I/We treat these funds as proceeds received in
exchange for surrendered shares, resulting in long term cap gain
treatment for those 2 shareholders (above their initial 5K contribution).
If yes, does the corp need to issue any 1099 type info forms.
Thanks for responses

[Bees Knees]

Sounds like you would get more satisfaction if you called the unauthorized use of funds an embezzlement and reported it to the DA.

You think thieves are going to care when they get a 1099?

[Unregistered]

they are all still on "fairly" good terms...just a dispute about
how available cash should have been handled.
so once again, is my approach to the "distributions"
viable. this is the preferred choice of the majority shareholder.
(return of capital and LTG treatment for the excess)

[rosieea]

The corporation is liquidating, so report the amounts on 1099-DIV in block 8.

[dsi]

The corporation is liquidating, so report the amounts on 1099-DIV in block 8.

Rosie points out an excellent approach. Also, you might consider grossing up the $$$ and calling it payroll?