Please note that if the K-1 has reported this as ordinary income than this should be related to sale of assets that would generate ordinary income and hence will be taxable as such.
If this is all you are going to receive from the S Corp and the S Corp has liquidated or dissolved than you will report the loss of investments on Sch D. You will report the disposition of your basis(investment) with zero sale proceeds if you are not going to receive anything against your basis. In fact note than this ordinary income that has been reported to you on Sch K-1 will also increase your basis unless you also received a distribution from the S Corp. Hence, this would generate capital loss.
Capital loss is generally offsetted against capital gain and balance capital loss can only offset your other income to the extent of $3000($1500 if married filing separately). Unused capital loss is carried forward and allowed in similar manner in future years.
You cannot report the amount reported on K-1 as ordinary income as a a return of capital. If you think that the K-1 is incorrect than you may want to contact the S Corp and have it corrected.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.