Tax consequences of liquidating a corporation

The consequences of distributions to the shareholders and the corporation are discussed further.Shareholders in an S corporation must keep careful track of their tax basis.The shareholder's oil and gas depletion deduction; c. Non- separately computed losses that pass through; and e. Reducing stock basis for non-deductible items prevents a shareholder from converting a non-deductible expense at the corporate level into a deductible expense when stock is sold or a liquidating distribution is received.Distributions in excess of basis are treated as gains from the sale of stock.Basis Computations During a Loos Year A net loss (not including distributions) first reduces the basis for stock, and then reduces the basis of debt owed to the shareholder by the corporation, if any.Under the proposed regulations, a shareholder's stock basis at the end of a current year that is available to absorb losses is increased by the amount of the shareholder's share of the corporation's separately and non-separately stated income items.Since losses flow through on the basis of the percentage of stock ownership, acquisition of additional stock will also increase the shareholder's proportionate amount of losses.In addition, a loan from a shareholder to the corporation gives basis to the lending shareholder.

They also include provisions on the timing of basis adjustments, basis computations during a loss year, computation of individual stock basis and the categorization of debt as basis.Is it sufficient for S corporation shareholders to maintain basis by the various blocks of stock purchased?Although not answered directly, the proposed regulations are developed within a context that would require shareholders to separately maintain basis for each share of stock held.The beginning basis for debt is the amount the shareholder loaned to the corporation.Stock Basis Rules Under the proposed regulations, the basis of stock is adjusted in the following order: Increases a.

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