Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer!If the entity has liability - and such liability do not have to be repaid anymore - that will be considered a taxable income of that entity. If the entity will be dissolved - the balance sheet should be zeroed.On the final tax return - Liabilities will be zero, forgiven liabilities will be included into gross income, you will deduct allowable business expenses, there will be income tax liability on net income (if any) and the remaining balance should be distributed to shareholders as liquidation distribution (assets and cash).
What about the liabilities receivable? Should they be written off to the expense account?
Yes - either written off if not collectible or disposed as non cash asset to shareholders at its FMV (partially written off) or sold to collectors.
Can we close these liabilities into a different company (another company with the same owner/partners)?
Account receivables is a company's asset - and you need to determine its value.To transfer it to a different entity - it must be either sold to that entity or distributed to shareholders who in turn will contribute or will sell it to that new entity.
It the account receivables is distributed to an owner to contribute it in a new entity, will the value of this A/R will be taxable to an owner?
The value is not taxable income. However because that is a liquidation distribution - it is treated as the sale of shares - and the shareholder will report either capital gain or loss based on his/her basis if corporate shares.
What is the best way to remove the A/R: to write it off or to distribute to an owner to reinvest it?
If the FMV of A/R is more than zero - it might be better to distribute to the shareholders.If it would be sold to a different corporation - the gain would be included into taxable income of that corporation. However if the old corporation has business loss - it is better to sell A/R.
You are welcome.