According to the IRS, it is seeing these conversions where the S corporation's primary business is property development or homebuilding.Often the current fair market value of the property is lower than the outstanding liability associated with the property.
When you're going out of business, your board of directors has a legal duty to maximize the value of the corporation's assets while trying to get rid of everything as quickly as possible.
Ultimately, state law governs the way liquidated assets are distributed to your company's stakeholders.
While your S corporation has a special tax status for federal taxpaying purposes, it's still governed by the laws of the state in which it is incorporated.
State business codes specify the procedures corporate managers must follow to execute the legal termination and asset liquidation of an S corporation. Obtain a vote and decision to dissolve the S corporation from shareholders.
State laws commonly require the managing parties of an S corporation to initiate state dissolution procedures only when authorized by shareholders. Stop conducting business on behalf of the S corporation being dissolved.