Distributing funds after closing

[ILLMAS]

Scenario:  Business stopped operating in 2019 but didn't close until 2021 because they were waiting to collect some outstanding AR's.  

12/31/20

BS

Cash             $20,000

Total Assets $20,000

 

Common Stock $500

Retained Earnings $19,500

Total Laib. & Equity $20,000

 

P&L

Sales        $18,000

Expenses $0

Profit       $18,000

12/31/21 will have no activity

Tax return is prepared on the cash basis and the business has a NOL of +30,000 so there is no tax due.  To close out the bank account and distribute the funds,  would it be safe to pay dividends of $19,500 to the owner and $500 of capital gains?  

Thanks

 

[Lee B]

Your scenario implies your client is a cash basis C Corp, in which case the numbers don't don't make sense to me.

[DANRVAN]

18 hours ago, ILLMAS said:

To close out the bank account and distribute the funds

That would be a corporate liquidation where the shareholder exchanges his stock for remaining assets.

So your client would have a capital gain equal to $20,000 less basis in stock per section 331(a).

Technically, form 966 should be filed and 1099-div showing the $20,000 liquidating cash distribution in the specific box.

Final paper work also needs to be filed with the state.

[Catherine]

4 hours ago, DANRVAN said:

Final paper work also needs to be filed with the state.

Yes; don't forget that!  Plus there is usually a fee (sometimes hefty) for dissolution.