ForumsTaxes and Payroll

Hi Steve,

You have a fairly complex question here.

Since you sold the assets of the company less cash, then only the capital accounts need to be addressed here.

First, If you close the bank account and trasfer the cash to the sharholders (members), this will be considered to be return of capital contributed, Thus reducing the sharholder's basis in his stock.

Second you should have made a section 1244 election, Small Business Stock, for the founders of the business. This permits the founders to recognize the income or loss as ordinary, subject to the shareholder's personal ordinary tax rate, A cpital loss classification will restrict the shareholders to an annual short/long term capital loss reduction in total income of $3,000.00

Third you must file a final form 1120 as an ordinary C corporation which recognizes the gain or loss on sale of assets and the accumulated operating losses as a net operating loss and discloses a negative retained earnings. This loss is then distrirbuted to the shareholders in accordance with plan of dislolution/re-organization in accordance with the proper section ot the tax code. You are buying back and retiring the stock of the company from the shareholders/investors. PLEASE SEE YOUR TAX ADVISOR..

Finally you need to file a notice of disolution at the company with State authority where you filed articles of organization/incorporation.

I hope that this provides you some help and guidance in solving this problem.

Richard Robinson
Santa Fe CPA