Liquidation of Financially Distressed S Corporations: Mastering Tax Implications of Liquidating Distributions

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Course Details

Course Information

smart_display Format
On-Demand
signal_cellular_alt Difficulty Level
Intermediate
work Practice Area
Tax Preparer

Date & Time

event Date
Wednesday, January 6, 2021
schedule Time
1:00 p.m. ET./10:00 a.m. PT
timer Program Length
110 minutes

Credit Information

BARBRI is a NASBA CPE sponsor and this 110-minute webinar is accredited for 2.0 CPE credits.
BARBRI is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).

$197.00

CPE

ALL

This course will delve into case studies on the planning, tax calculations, property dispositions, and dissolution filings required to liquidate an S corporation, particularly those in financial distress. The panel will provide a briefing on the general rules stated in IRC Section 1371 tying liquidation rules back to those applying to C corps, detailing the gain or loss on distributions in exchange for stock, and outline scenarios illustrating the rules in action.

Faculty

Amanda Wilson

Partner

Nelson Mullins, LLP

Ms. Wilson concentrates her practice on federal tax planning and structuring and represents clients in a wide variety of complex federal tax matters, with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts. Specifically, she focuses on advising clients on the formation, operation, acquisition and restructuring of pass-through entities.

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Robert W. Jamison

Professor Emeritus of Accounting

Indiana University

Mr. Jamison is Professor Emeritus of Accounting at Indiana University, Purdue University, Indianapolis (IUPUI). His principal area of specialization is S Corporations. He is the sole author of S Corporation Taxation, and co-author of Multistate Tax Guide to Pass-Through Entities, both of which are published annually by CCH, a Wolters Kluwer business. He is a regular contributor to Land Grant University Tax Education Foundation, Inc. National Income Tax Workbook and has contributed to Federal Tax Workshop. He presents advanced and update S Corporation seminars for various states' CPA societies and to other professional organizations. He is a member of the AICPA S Corporation Technical Resource Panel. He consults on S corporation and other business entity problems and has secured letter rulings from the IRS.

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Description

S corporation liquidations generally are subject to the same rules as C corporations. However, the lack of entity-level tax creates different tax considerations. In some cases, there may be some corporate level problems, such as the built-in gains taxes. Tax advisers must be aware of the Subchapter C rules, especially those concerned with gain or loss recognition on the distribution.

Also, Subchapter S contains rules concerning the pass-through character of income, gain, and loss. Consequently, tax professionals advising the corporation and its shareholders must calculate the tax impact for shareholders, who ultimately bear the tax burden of the liquidation.

Crucial to tax-efficient planning in S corp liquidation situations is the accurate calculation of S shareholders' "outside" tax basis in their shares and the S corporation's "inside" tax basis in its assets. Advisers must have a comprehensive basis schedule for all shareholders. Other special rules concern the distribution of installment receivables, debt instruments held by shareholders.

Finally, there are some special considerations for unsuccessful corporations. Because a complete liquidation will cause any shareholder's suspended losses to be extinguished, the timing of the liquidation is a significant issue in planning.

Listen as our experienced panel provides a detailed examination of the tax rules and planning considerations to address in the dissolution and liquidation of S corporations and offers case studies to illustrate tax treatments to shareholders under various liquidation scenarios.

Outline

Liquidating a distressed corporation
1. Preserving S corporation status until the end
2. Cancellation of debt of S corporation
3. Timing of cancellation of debt
Impact of shareholder guarantee of debt
1. Release from guarantee vs. cancellation of debt
2. Payment of obligation by shareholder
Settlement of debt to the shareholder: ordinary vs. capital loss
Liquidating distributions
1. Loss limitations of corporation
2. Loss limitations of shareholder
3. Timing of distribution

Benefits

The panel will discuss these and other key issues:

What are the rules for recognizing income and losses in the year of liquidation of the S corporation?
How does the S corporation report liquidating distributions of installment receivables and other property?
How do the S corporation and its shareholders report distributions of encumbered property, including situations where the debt exceeds the value of the asset distributed?
What are the ramifications to shareholders after liquidation regarding basis, payment of claims against the corporation, and transferee liability?

NASBA Details

Learning Objectives

After completing this course, you will be able to:

Identify the tax challenges and planning opportunities in putting together a liquidation plan for an S corporation
Determine how to complete inside and outside basis schedules
Discern how differences in those basis amounts influence tax reporting and liquidation option
Ascertain tax consequences of liquidating distributions on shareholders

Field of Study: Taxes
Level of Knowledge: Intermediate
Advance Preparation: None
Teaching Method: Seminar/Lecture
Delivery Method: Group-Internet (via computer)
Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific and detailed knowledge and understanding of S corporation stock basis rules, S corporation ownership structure, operating agreements and distributions; familiarity with the rules governing Accumulated Adjustment Accounts (AAA), and difference in treatment of debt between partnerships and S corporations; and basis calculations for S corporation shareholders according to IRC sections 1366 and 1367.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.