What transaction is necessary to handle this situation?

My husband is sole proprietor of his s-corporation. In 1998, our tax attorney calculated a $55000 LOANS FROM SHAREHOLDERS. (My husband and I are the ONLY shareholders). After 16 years in business, our Retained Earnings account is a NEGATIVE $54000.
We wish to shut down the s-corp this year. The s-corp has no other debt, but does NOT have sufficient funds or assets to repay the LOANS FROM SHAREHOLDERS. We no longer use the tax attorney, but have been using Turbo Tax for Business to file the s-corp's 1120s return.

What transaction will close out the LOANS FROM SHAREHOLDERS?
What kind of impact will this transaction have on the s-corp's 1120s tax return and our own 1040 personal return?

I cannot answer these questions since I do not prepare corporate returns, but even if I did, I would STRONGLY recommend you get professional tax help to address this issue. Its complexity screams for the need for a tax pro.

Thanks, but not helpful.
Anyone with corporate expertise?

You will need to hire someone... AtlantaTaxExpert is spot on with their advice.. and it is in fact HELPFUL. You aren't going to do this yourself, or for free. It is far to complex for a forum post...and the person doing it would need full access to all the records. Doing it wrong will bring the IRS down on you hard and heavy.

As noted, you should get professional help with this situation. Corporate liquidations can have tax effects you may not have not planned on. For instance, if you have deducted losses on your personal tax return based on the loans, as it appears you should have, you may realize income on the repayment of those loans.

What assets do you have (do not answer this here)? During the liquidation process either selling those assets, or passing those assets out to the shareholders, are taxable transactions which may have tax consequences that you may be able to do some tax planning to minimize. A professional should be able to insure the transactions are properly handled and that you pay the least amount of taxes.

Good luck with the process.

I appreciate each response, and yes, I will seek professional advice. Thanks!

Glad to provide what limited help I could.