Liquidating corporation with negative equity
We have an S corp that has a large negative equity with 2 Shareholders, the company continues to have losses...shareholder wants to resign and leave the company...does not want any monies out she just wants to leave..way to gift the negative equity to the other shareholder..they make changes to a shareholder agreement to reflect that. However situations when S-corporation equity becomes negative are possible.
These losses should be reported to shareholders – and if are not used because of the basis limitation – are lost and may not be accumulated... But I do not see how her basis would be less than zero.
I assume that her shares have no value - then she may give them back to the S-corporation. So if her basis is zero and she is getting nothing in exchange - there will not be any tax consequences for her.
She reports the disposition of shares at zero cost and zero basis – so the gain /loss would also be zero.
Yes - there should be a letter that she is willing to give away her shares.
I would also suggest evaluating her shares - to verify that they have zero value. Following might be usefull itself has some value..are thinking about $100k..she still just relinguish her shares???