David

The allocation says "Debt (Current AP) and nets this against AR. Yes, the numbers allocated to each class of assets add up to the total. Yeah, I just can't figure out why the books will show the $10K gain for the allocated sale of AP. Is my treatment of inventory correct? Thanks.

Judy, Thanks again for your help. Yes, I understand the goodwill piece. The accountant just called the holding account Goodwill, understanding that it wasn't really goodwill. That makes sense to go through each account. The sale of $1,200K was booked as follows: $1,145K to cash, $55K Other Rec. (this is escrow paid in 2015), and $1,200K to gain from sale. I'd like input on 2 accounts to make sure I understand you correctly - Inventory balance was $20K and the purchase agreement allocated sales for inventory at $66K. This should be reported by crediting the inventory account for $20K and debiting the gain from sale for $20K which results in a $46K gain. The tax return should show a sales price of $66K and cost of $20K for a total gain of $46K. This makes sense and the book gain matches the tax gain. However, I'm having a little trouble with AP - AP had a balance of $249K as of the sale date and the purchase agreement assigned a value of $10K. Even during the negotiation timeframe AP was never that low. The company continued paying accounts payable down to zero after the sale date (March) through August using the cash they had on hand plus the $1,145K cash received from the sale. Since the $1,200K sale price reported as gain from sale on the books includes the $10K sales allocated to AP, there is a $10K gain for AP reported on the books. However, on the tax return the sale price should be reported as $10K and the cost should be reported as $10K which nets to no gain or loss. I shouldn't have to do anything regarding the difference between the $249K AP balance and the $10K sale price since all of the AP was paid by August and the year end balance is zero, correct? I can't figure out why the $10K discrepancy exists. Any ideas? Thanks.

Thanks so much KC and Judy. That helps a lot. The accountant closed out most of the accounts to a holding account and named the account Goodwill. My hope is, as I weed through that account, all of the assets and liabilities that weren't part of the sale have been zeroed out from normal operating transactions. If I find that the accountant just zeroed out accounts with ending balances to the holding account, then shouldn't those accounts be netted against the gain/loss from sale of assets? No 1099-DIVs were filed. Since the shareholders only received the capital they paid in and there is no gain to the shareholders, is it Ok to just let this go? There was an amount left in escrow that was paid to the shareholders in 2015. I will make sure that last part gets reported on a 1099-DIV. Thanks for your help.

OK, I think I better understand what should happen in this situation. I'd like to confirm my understanding. Only the assets and AP listed in the purchase agreement are closed out against the gain from sale. Any other assets and liabilities such as prepaid insurance, debt and accrued expenses are considered handled from the cash received from the sales proceeds and do not impact the gain from sale. The payments to the shareholders for their additional paid in capital is considered paid from the sales proceeds and do not impact the gain from sale. If the assets and AP are different than the amounts listed in the purchase agreement, are these differences used to calculate the gain or loss from sale? For instance, the purchase agreement lists inventory at $66K. The actual amount on the date of sale was $20K. Is the $46K considered gain from sale? If some assets or liabilities not listed in the asset agreement, such as prepaid insurance or accruals, have a remaining balance I am thinking that balance will stay on the balance sheet? If all assets and liabilities need to be zeroed out, what are the closing entries? Now it appears that the NOL carryforward will not offset the gain from sale and the corporation will have a tax liability. Therefore, won't there still be a balance in the equity section showing the negative retained earnings, current year loss and the gain from sale? I thought the year end balance sheet should be zero since the assets have been sold and the shareholders have been paid back for their capital. What am I missing here? Thanks for your help.

C Corp sold the business in an asset sale. The Corp has an NOL carry forward, negative retained earnings and additional paid in capital. There is no capital stock shown on the balance sheet. This is the first C Corp asset sale I have done. To close out the corp do I simply zero out all asset, liabilty and equity accounts offsetting them to gain from sale? The asset sale is allocated to AR, AP, inventory, fixed assets, 197 intangibles (such as going concern, workforce in place, non-compete covenant, etc.) and goodwill. Regarding reporting the sale on the 1120 - I know that the sales allocated to fixed assets is reported against each asset's adjusted basis to report gain or loss. Do I report each allocated sale on Form 4797 for the other categories above, even those that have no cost, such as the 197 intangibles and goodwill? How do I report the other assets, liabilities, additional paid in capital and negative retained earnings? The sale proceeds were used to pay off debt, operating expenses and pay back the additional paid in capital for the 2 shareholders. The shareholders took no other proceeds. The NOL carry forward will offset the gain from sale of assets. So there will be no tax due from the corporation or shareholders. Is this correct? One last thing - even though there are no assets or additional paid in capital, the shareholders don't want to dissolve the corporation since there will still be an NOL. They want time to decide if they can do something else in the corporation and take advantage of the NOL in the future. Is this an option since there are no assets or paid in capital? Thanks for your help.

Dot, We just switched to ProSeries for the 2014 tax year after being with ATX for 10 tax seasons. May I ask why you left ProSeries? Thanks.

Thanks, Michael. That worked.

I meant to say that the PS community says to make a copy of the previous year 8582 worksheets and then delete the worksheets in PS. When the property is finally sold, then use the prior year 8582 worksheets to report the suspended loss.

Thanks, Michael. I checked the Sch E worksheet and I don't see where I indicate zero business use. I entered 0 days rented but that generated an error message saying that a Sch E need s to have at least 15 days of rental use. I can't find a way to get rid of that error message or to do a workaround to allow the Sch E to remain with no activity. The PS community says to delete the previous year 8582 worksheets to use when the property is finally sold and to not show the suspended loss on the 8582. Thanks for your help.

Yeah, 2013 showed it on the 8582 for me but I was using ATX then. Now I am using PS and the recommendation is to copy the 2013 8582 worksheets for future use and delete the worksheets in PS. The only way I can get it to stay on the 8582 is to keep Sch E but it will create an error if I put zero rental days. If anyone else is using PS and knows how to get this done then please let me know. Thanks.

OK, thanks for your help.

Thanks. Maybe my question wasn't clear. I am asking if the suspended loss isn't reported on the 2014 8582, will that create red flags with the IRS when a suspended loss is taken when the property sale is reported on the 2015 tax return. So when you say no, do you mean that the loss doesn't have to reported on the 2014 Form 8582? Thanks for your help.

TP has had a suspended loss from a rental property that was converted back to his primary residence in 2011. The property has had a suspended loss carried forward on Form 8582. He sold the property in 2015. I want to make sure the suspended loss is handled correctly on the 2014 tax return. I started using ProSeries (PS) this year. It appears that there is no method in PS to keep the suspended loss on Form 8582. The recommendation is to keep copies of the previous suspended loss worksheets to use when reporting the future sale of the property. The suspended loss was reported on the 2013 8582 in the ATX program. Doesn't the suspended loss have to be reported on the 2014 8582 in order to use the loss when reporting the sale on the 2015 tax return? Thanks.

TPs claim college age daughter every other year. They are claiming her in 2014. The daughter is not included in the TPs healthcare coverage but is covered by the other parent's health coverage. According to the instructions, the dependent's AGI is required to be included on Form 8962 even though the premiums reported on 1095A do not include her premiums. Am I understanding this correctly, that the dependent's AGI has to be reported on the TP's 8962? Thanks.

TP was divorced in 2011. He owned 2 rental properties that had loss carry forwards at that time. He filed single in 2011 and only half of his loss carry forwards were brought over to his 2011 tax return. TP says he owned those properties prior to his marriage and her name was not on the deeds. The ex-spouse was not aware of the loss carry forwards so she did not deduct them. He began living in one of the rentals in 2011 and the 1/2 loss carryforward has been suspended since that time. He sold this property in 2015. This is why I want to get the loss carry forwards corrected in 2014. He has continued renting the other property since the divorce and in 2011 he used the 1/2 loss carry forward from 2010. Can I change the loss carry forward amount for the 2 properties on the 2014 form 8582 to give the TP credit for the 1/2 loss carry forward amount that should have been carried forward on his 2011 tax return without raising any flags? If it will raise a flag, will a statement explaining the situation suffice? Or do I have to actually amend the 2011 - 2013 tax returns to show the correct loss carry forwards each year? I know the TP will not receive the refund due for 2011 so that is a moot point probably. In 2011 he would have been able to deduct the full amount of the other 1/2 loss carry forward on the property that is still being rented. So maybe the best thing would be to change the beginning suspended loss amount for the property he has been living in and include a statement explaining the error? Can anyone who has dealt with this situation give me some guidance? Thanks.

New client is going through a divorce in 2015. She is filing MFS in 2014. Her husband has a Sch C business which my client is not involved in at all. Her husband gave her money through the year to pay the mortgage, etc. She is not claiming any of the mortgage interest, property taxes, etc. He issued her a 1099 for $57K. There is no communication between them so she thinks he is issuing a 1099 for half of the business profits. She did no contract work or any other work for the business. I know I have to report the 1099 on her return. However, I am planning on expensing it out in other with a statement that the 1099 was incorrectly issued and should be reported to H's ssn. Has anyone had this issue? If so, how did you handle it? Thanks.

Thanks for your help, Judy.

A footnote on a partner's K-1 says that the accumulated production expenditure exceeded the partnership's traced debt. Therefore, the partners are subject to the interest capitalization ruleson their share of the production expenditures as if the partners themselves had incurred the production expenditures. Your share of the total excess production expenditures: $15,105 Interest included in rental income/(loss) at an average rate of 3.74% is: $564 How is this handled and where is it reported? Thanks.

I know there aren't supposed to be any dumb questions, but..... TP sold his business assets. He had goodwill on the books that wasn't fully amortized. Part of the sale price is allocated to goodwill. Do I dispose of the current goodwill by showing no sale received and writing off the remaining balance. Then show the sale of goodwill with no cost basis? Or, do I dispose of the current goodwill by showing the sale price allocated to goodwill as proceeds received and net that against the remaining book value to calculate the gain? Thanks.

OK, the suspended loss wound up on Sch E and the sale showing the gain along with the depreciation previously taken were reported on 4797 and Sch D. Hopefully, this is how it should be reported. Thanks for your help.

Do 1099Qs have to be reported even though all funds were used for education? In the past I haven't reported 1099Qs if they were used 100% for education expenses. Now I'm hearing otherwise, that we are required to report them or else the TP may receive a letter from the IRS. As far as I know, none of my clients have ever received a letter regarding reporting of 1099Qs. The 1099Q is in the name of the parent and dependent (beneficiary) but lists only the parent's ssn. The box is marked that says the distribution was not to the beneficiary. Also, the total amount of distribution is greater than the tuition amount on Form 1098-T because of room and board. Given this situation and knowing that all of the funds were used for qualified education expenses, do I still need to report the 1099Q? Thanks.

Someone told me that since she was using it as a second home or investment property since 2012, that she is not allowed to take the loss carry forward that was generated from the rental period. She could only offset passive income with the loss carry forward. I don't see where that person is getting that information. I thought that the loss carry forward would be able to be taken when the property sold, no matter how the property was used after the rental period. Is my understanding correct? Thanks.

TP purchased a rental property in 2004 and rented through 2011. From 2012 - 2014 she tried selling the property and used it occasionally for vacations. She sold the property in early 2014. There is a remaining rental loss carry forward. Isn't she allowed to take this loss carry forward to offset the gain and the depreciation recapture? If so, is this reported as an increase in the adjusted basis? Thanks.

Thanks for your help with this. Yes, I was surprised that the first client's HRA administrator told them they were in compliant but I thought I would check with the forum to see if the administrator had information that I couldn't find anywhere. Regarding the pastor, I'm sure there is an admin or other employees. If the other employees are covered by their spouse's employer health coverage and the pastor is the only employee that is covered, then isn't the HRA OK since it is tied to Medi-Share, an ACA allowed plan? Thanks.

Everything I have read regarding HRAs is that effective 7/1/15 companies can no longer offer these to employees to help pay for their individual health care premiums and other medical expenses. A client with less than 50 employees uses this arrangement for their employees and told the employees to get their health insurance through the exchange or wherever they choose. I advised the client that they could no longer provide the HRA and if they continued they would be subject to penalties. The client called back and said that their HRA administrator told them that as long as the employee was getting their individual health insurance through the exchange then the HRA is still compliant. Has anyone seen any cites that confirm what the HRA administrator says? I haven't seen anything that supports that stance. I also have another client, a pastor, who has his and his family's health care provided by Medi-Share, a christian medical sharing program. This program is compliant with the ACA. The church also has an HRA arrangement with the pastor to reimburse him for his premiums and other medical expenses. Is the HRA also non compliant in this situation? If ALL HRAs are no longer compliant, even if employees get their insurance through the approved exchanges, and the employer continues to offer the HRA, are they not subject to the $100/day/employee penalty if they include the amounts paid through the HRA as taxable wages? Thanks.