You might choose partial liquidation if a segment of your company is discontinued because it was destroyed.
The company can distribute the unused insurance proceeds recovered as a result of the destruction in exchange for its shareholders’ stock, qualifying as a partial liquidation distribution.
Because the income of S corporations is taxed to the owners when the income is earned, a mechanism is needed to ensure that the shareholder is not taxed again when the earnings are distributed.
In a partial liquidation a company redeems all or part of its outstanding stock then distributes the proceeds to its shareholders.The company would send me a 1099 tax form filled "only" with Col-8 for Cash distribution / Liquidation. These distributions are, at least in part, one form of a return of capital. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9, in your case they were cash in box 8.Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock.A type of payment made by a corporation to its shareholders during its partial or full liquidation.For the most part, such a distribution is made from the company's capital base, and as a return of capital, is typically not taxable for shareholders.