Short Year 1120S

[DaveinTexas]

I need some guidance. This is my first time to dissolve an S Corp. I know about the form 966 requirements, the shareholder resolution form to dissolve, the distributions to the shareholders, gain or loss realized by the corp for distributions to shareholders and I know about the state's requirements to dissolve the corp.

I am clueless on three subjects and I would really appreciate the help from you guys/gals.

1. If dissolved as of 08/30/2007, can I file a 1120S short year return for 2007 on the 2006 1120S since the 2007 form 1120S is not yet available?

2. If the shareholders currently have disallowed losses from previous years due to a $0 stock basis for each. This last year return will show a loss as well. What happens to these disallowed losses in the final year of business? Do they vanish because the shareholder's stock basis is currently insufficient to cover these losses?

3. This is a 50/50 ownership and one shareholder is not responding to calls and is out of the state; non-responsive and could care less about the corporation. Does my client, the prudent one, have any obligation to alert or get permission from his former partner to close this corporation down. I there any clause that will allow my client to close this corporation down by himself?

Whew! I really appreciate any insight into my mess. I like to keep businesses running, not close them down.

TIA.

[Bees Knees]

1. If dissolved as of 08/30/2007, can I file a 1120S short year return for 2007 on the 2006 1120S since the 2007 form 1120S is not yet available?

Instructions for Form 1120S say:

Period Covered
File the 2006 return for calendar year
2006 and fiscal years that begin in
2006 and end in 2007. For a fiscal or
short tax year return, fill in the tax year
space at the top of the form.

The 2006 Form 1120S can also be
used if:
• The corporation has a tax year of
less than 12 months that begins and
ends in 2007, and
• The 2007 Form 1120S is not
available at the time the corporation is
required to file its return.

2. If the shareholders currently have disallowed losses from previous years due to a $0 stock basis for each. This last year return will show a loss as well. What happens to these disallowed losses in the final year of business? Do they vanish because the shareholder's stock basis is currently insufficient to cover these losses?

TTB, page 7-14 says:

At-risk loss carryovers. Any loss that is not allowed for an activity
under at-risk rules is treated as a deduction for that activity in
the following tax year.

In other words, each time a loss is suspended due to $0 stock basis, you carry it over and treat it as a loss in the following year. Since the same at-risk loss limitations apply for the following year, the loss may very well be suspended again if there is no increase in at-risk basis. This rule continues to apply even after the activity is sold or liquidated.

Another way to look at it is a taxpayer can never deduct more losses than the sum total of all actual money contributed and actual income earned from the activity in prior years. So if the taxpayer was never at-risk for the loss, the loss is never deductible.

3. This is a 50/50 ownership and one shareholder is not responding to calls and is out of the state; non-responsive and could care less about the corporation. Does my client, the prudent one, have any obligation to alert or get permission from his former partner to close this corporation down. I there any clause that will allow my client to close this corporation down by himself?

Sounds like a state law issue. Some states automatically dissolve a corporation after so many years of not registering with the Secretary of State. I would advise you see an attorney for this question.

[DaveinTexas]

Ah Bees Knees

Always the voice of reason. Just when I think a problem is complex, you give a reference to the form instructions. Amazing, if some of us would stop relying on the internet or a software program to give us the answer and just go to the instructions of the form.

Thank you for your help. Thanks for all the fine work you do for this forum.

[veritas]

File an extension and use 2007 forms.

Much easier.

"1. If dissolved as of 08/30/2007, can I file a 1120S short year return for 2007 on the 2006 1120S since the 2007 form 1120S is not yet available?"