Generally, property you inherit from a decedent receives a “step-up” (increase) in basis equal to the fair market value of the property at the time of death.The step-up is potentially valuable as it allows the beneficiary to avoid paying capital gains tax on any appreciation in the value of the asset prior to the decedent’s death upon the future sale of the inherited property. The liquidating distribution is not reported on the 1120-S. This should be reported on Form 1099-DIV in the liquidating distribution box.' data-inline-edit-type='wysiwyg' data-inline-edit-url='/answers/4340231' id='inline_edit_answer_4340231_body' You need to prepare a final 1120-S return along with the appropriate number of K-1's.
But for tax purposes, the defining line can make a big difference.Company management, however, was blissfully unaware of this development and continued to file the business’s federal corporate income tax return and pay all federal income taxes.Eventually, company officers learned of their plight and reincorporated the business in the same state.Distribution source and shareholders' basis for their corporate investment determine the tax consequences of distributions from S corporations.The regulations being proposed under IRC Secs 13 provide the particulars of adjustments to stock basis and distributions to S corporation stockholders.