jklcpa Posted January 27, 2017 Report Share Posted January 27, 2017 I have probably the stupidest and easiest of questions and am having a total mental block. One of my C corps sold its business in an asset sale and is filing its final return. The balance sheet should be zeroed out. The distributions have been made and when I enter those on Sch M-2, it ends up with a negative balance of $10K on line 8, and is exactly equal to the amount of common stock. So at this point the only 2 things on this balance sheet are $10K of common stock and negative retained earnings of $10K. Am I not thinking clearly about this. I need more, much more, sleep and a whole lot of chocolate. What the heck am I doing wrong? I think I need to fill out the M-1 and M-2 because the company's revenues from operations before the sale were ~ $300K. Is that correct also? Told you these were stupid and easy. Please send chocolate ASAP! Quote Link to comment Share on other sites More sharing options...
Elrod Posted January 27, 2017 Report Share Posted January 27, 2017 Sounds right to me....One washes the other out...Books closed... 3 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 27, 2017 Author Report Share Posted January 27, 2017 You know, it's the first corp of the year and I forgot that I have the software set to not autobalance the Sch L so it didn't fill in retained earnings. I just went back in and entered the negative $10K in Sch L for the unapprop R.E, and then Drake filled out the M-2 including line 8. I don't know why it wouldn't complete the M-2 because of that, but now it's filling in those lines. I guess that was my whole problem, because the program was leaving lines blank and not completing the math. Now Sch L shows $10K in common stock and negative $10K in r.e. 3 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 27, 2017 Author Report Share Posted January 27, 2017 Thanks for the chocolate and the help! 1 Quote Link to comment Share on other sites More sharing options...
Elrod Posted January 27, 2017 Report Share Posted January 27, 2017 26 minutes ago, jklcpa said: You know, it's the first corp of the year and I forgot that I have the software set to not autobalance the Sch L so it didn't fill in retained earnings. I just went back in and entered the negative $10K in Sch L for the unapprop R.E, and then Drake filled out the M-2 including line 8. I don't know why it wouldn't complete the M-2 because of that, but now it's filling in those lines. I guess that was my whole problem, because the program was leaving lines blank and not completing the math. Now Sch L shows $10K in common stock and negative $10K in r.e. Good Girl....And You're welcome... 2 Quote Link to comment Share on other sites More sharing options...
rfassett Posted January 28, 2017 Report Share Posted January 28, 2017 13 hours ago, jklcpa said: Now Sch L shows $10K in common stock and negative $10K in r.e. Is this the result you want? Or are you trying to zero out the balance sheet? Methinks you over distributed the ordinary dividend. Part of the distribution would have been return of capital. That portion would not be included in the M-2 amount. 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 28, 2017 Author Report Share Posted January 28, 2017 2 hours ago, rfassett said: Is this the result you want? Or are you trying to zero out the balance sheet? Methinks you over distributed the ordinary dividend. Part of the distribution would have been return of capital. That portion would not be included in the M-2 amount. Yes, trying to zero out. Don't I include that $10K in the total liquidating distributions so that they report the total as proceeds on their stock redemption and claim the $10K basis they have in the stock? Don't the liquidating distributions tie in to M-2? Quote Link to comment Share on other sites More sharing options...
rfassett Posted January 28, 2017 Report Share Posted January 28, 2017 I believe the $10,000 would be a non-dividend distribution. Distribution to extent of capital stock is basis to shareholder. Then distribution to extent of Retained Earning is dividend income. Remaining distribution is liquidating dividend.. That is how it would appear on the 1099-DIV and how I believe it would shake out on the 1120. So to answer your question - the liquidating distribution does not necessarily tie to the M-2. 6 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 29, 2017 Report Share Posted January 29, 2017 rfassett is asking the same question I have. I believe you have to liquidate the stock. It cannot exist any more. I am not sure a 1099DIV is the reporting mechanism. I think you need a stock redemption transaction recorded on the books as the final entry to zero out everything. Tom Newark, CA Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 29, 2017 Author Report Share Posted January 29, 2017 Here's what's happened, and I hate when attorneys give this advice. Attorney told the client to just not pay the state franchise tax or any licenses any more and let the corporation go into default, notify all agencies, and that they did not need to go through a formal liquidation. Owners distributed the remaining cash and an automobile. So how should this be reported? Wouldn't what Ron was saying be the proper way then, to report all as ordinary/QDI dividends up to the amount of retained earnings except for the $10K that is a return of capital? ETA - I do have the auto distrib'd at FMV with that gain recorded in the corp. Quote Link to comment Share on other sites More sharing options...
rfassett Posted January 29, 2017 Report Share Posted January 29, 2017 1 hour ago, BulldogTom said: rfassett is asking the same question I have. I believe you have to liquidate the stock. It cannot exist any more. I am not sure a 1099DIV is the reporting mechanism. I think you need a stock redemption transaction recorded on the books as the final entry to zero out everything. Tom Newark, CA I agree, Tom, about your treatment zeroing out the balance sheet, but a 1099-Div must be used to report this transaction to the shareholder and the government. A dividend has been paid and it needs to be reported. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 29, 2017 Report Share Posted January 29, 2017 Sorry, but I disagree. A redemption of Stock is a sale or other disposition. I don't think it is a distribution of profits which would give rise to a dividend. If I am wrong, please show me where you are getting your info. I don't do many of these, but I am pretty sure that is just a return of capital in a stock redemption and not reportable on a 1099 DIV. Tom Newark, CA Quote Link to comment Share on other sites More sharing options...
jasdlm Posted January 30, 2017 Report Share Posted January 30, 2017 I agree with Tom. I believe all liquidating transactions are reported through the K1. If there WAS a 1099, (which I do not think there should be), wouldn't it be a 1099B? Agree with zeroing out the balance sheet. File form 966. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 30, 2017 Author Report Share Posted January 30, 2017 54 minutes ago, jasdlm said: I agree with Tom. I believe all liquidating transactions are reported through the K1. If there WAS a 1099, (which I do not think there should be), wouldn't it be a 1099B? Agree with zeroing out the balance sheet. File form 966. This is a C corp so no K-1. Also 1099Bs are issued for broker and barter transactions and that would not be appropriate either. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted January 30, 2017 Report Share Posted January 30, 2017 So sorry. Missed the C-Corp reference. How embarrassing. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted January 30, 2017 Author Report Share Posted January 30, 2017 No problem, and I appreciate everyone's input here so don't be sorry or embarrassed at all. 1 Quote Link to comment Share on other sites More sharing options...
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