Question 1 of 15. How are capital gains on Form 11208 taxed? The Scorporation will report and pay the tax when submitting their Form 11205 for the tax year. Capital gains from an Scorporation are generally not taxable because they are treated like qualified dividends. Each shareholders portion of the capital gain will be reported to them on their Schedule K-1 (Form 11205) and they will pay the tax with their Form 1040. When submitting their Schedule K-1 to the IRS, each shareholder will pay their taxes owed