S corp liquidating dividend
Here's the history so this statement makes sense.
Congress added Subchapter S (the relevant chunk of tax law) to the Internal Revenue Code more than fifty years ago in 1958.
Let's broach one other issue--the possibility that the Subchapter S tax accounting rules will be removed from the Internal Revenue Code. A couple of times in recent years (mostly seriously in 2010), Congress discussed the idea (see here, for example). Further, the "loophole" has been repeatedly discussed and then re-affirmed by Congress many times over the last half century. You and I should totally expect that politicians (both Republicans and Democrats) will continue to debate Subchapter S loophole regularly.
But I will predict that just as they have done countless times in the past, they will in the end decide to continue the loophole they themselves created.
Today, accordingly, you hear people use the phrase "S corporation" to refer not only to corporations that use the Subchapter S accounting rules, but also to limited liability companies and even other entities like limited liability partnerships that use the same rules.
We talk in more detail about how the Subchapter S accounting rules save taxes in many of the FAQ articles.
But that wasn't a problem when, for all practical purposes, only sole proprietorships, partnerships and corporations even existed for business tax law purposes.
Once the IRS opened the door to this option, not just corporations but also LLCs and even other esoteric entities like limited liability partnerships began making the election to use the Subchapter S accounting rules.
If you know you're ready to set up an S corporation, you can click on your state name in that list that runs along the left edge of the window.
That'll take you to a page that describes the steps for setting up an S corporation in your state and provides an inexpensive downloadable kit you can purchase if you think you need help. Don't rush into the S corporation decision just yet.
But before you start poking around the FAQ (a great place to dig deeper into subject matter), let me give you some background information on Subchapter S corporations.
I make this point again and again at this website, but as you begin your research let me clear up a point of confusion: An S corporation is not really a corporation.
On the other hand, individual shareholders often prefer that the distribution be treated as a redemption, for three reasons: A distribution qualifies as a stock redemption only if it significantly reduces the interest of the shareholder in the corporation.