Capital that is restored to a business owner or investor after partial or full liquidation.
They are not typically considered taxable income because it is the return of principal.
If, for instance, a taxpayer receives stock as the result of an inheritance, the IRS usually requires the recipient to assume the fair market value of the stock at the time of the deceased's death as his basis in the stock.
If, on the other hand, a person receives stock as payment for services, the IRS requires him to claim the fair market value of the stock as income and assume the amount claimed as his basis in the stock.
This schedule is being provided as a courtesy so that you can assist shareholders in calculating the tax basis of their shares.
Creditors are always senior to shareholders in receiving the corporation's assets upon winding up.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.