The corporation does not recognize gain when it distributes cash to its shareholders.  Also when a shareholder in exchange for cash, redeems a corporation stock, the corporation recognizes no gain. (Sec. 311(a)).  On the other hand, if a corporation distributes property in connection to stock redemption, this may result in corporate-level capital gain and/or ordinary income.

Generally a corporation will recognize capital gains when it distributes capital assets or Sec 1231 assets.  So what happens if a corporation (C Corp or S Corp) distributes property or stock other than cash to a departing shareholder?  The corporation will recognized gain (not loss) if the fair market value (FMV) of the property exceeds its adjusted cost basis (Sec. 311(b)(1)).  The depreciation recapture of certain capital assets will trigger ordinary income and/or special unrecaptured sec. 1250 gain that is subject to 25% capital gain tax.  Basically the non-cash distribution is treated as if the corporation (C Corp or S Corp) had sold that property to the exiting shareholder.  This taxable transaction is reported on Form 1099-DIV and Form 5452.

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If you were thinking of getting additional office help and wanted to hire someone on a part-time of full-time basis you need to understand the difference between employees and independent contractors. There is a major difference between employees and independent contractors when it comes to how much tax you as an employer has to pay and withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

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