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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29774
Experience:  Taxes, Immigration, Labor Relations
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My Name is ***** ***** Stevenson CPA, and I do not know how

Customer Question

My Name is ***** ***** Stevenson CPA, and I do not know how to handle this situation. I am preparing a final return for an S Corp, which was previously a C corp with C corp retained earnings. What are the tax consequences of closing a S corp with C corp retained earnings on the Balance Sheet?
JA: Thanks. Can you give me any more details about your issue?
Customer: The C Corp elected to be an S corp 3 years ago, now they want to file a file a final return for the S Corp. What happens to the amount shown as prior C corp retained earnings?
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Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Only tax consequences is there is BIG - built-in-gain retained by the S-corporation.

In this case - distribution of assets to shareholders is treated as the sale - and built-in gain is realized on the corporate level.

Expert:  Lev replied 1 year ago.

Otherwise - there is no difference. Distributions to shareholders would be treated as sale price of corporate shares (and that includes prior retained earnings from C-corporation) - so shareholders will calculate a gain or loss depending on their basis in corporate shares.

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