OldJack

Individual Seller of C-corp stock, not to C-corp, would simply report the sale on his 1040 Sch-D. Buyer has no report and C-corp has no report. If the C-corp was NOT the buyer, there would be no reporting or accounting of the sale on the form 1120. If the C-corp was the buyer, there would be accounting for treasury stock and/or redemption of stock rules for consideration of deemed taxable dividends. There could be a state reporting requirement depending upon your state.

>>Depreciation is his since you must give him worksheets that adjusted his numbers.<< I always include the ATX detail depreciation schedule attached to the copy of the tax return given to a client. When a client calls for a copy I just remind them that it is attached to the tax return.

The word Void is actually a check box so that if you print a bad W2 you check the box and the government ignores processing that W2 but still processes the other W2 on the sheet.

It would have been nice of her if the word had been "keep".

I disagree with abandoned and acquired at fully depreciated value. There are basically 2 ways to transfer: 1. Tax-free reorganization under code sec. 361. These corporations are related parties and a transfer under code sec. 361 would require a "step into the shoes" tax basis. Also there is the "anti-churn rules [under code sec. 168] for MACRS depreciation that would not allow a different depreciation basis. 2. Liquidation/deemed sale with contribution under code sec. 351. If Liquidation/deemed sale from the corporation to the individual, then distribution/sale to the individual would have to be at FMV with the liquidation corporation recognizing taxable gain/loss passed to the individual for 1040 taxes. The individual pays taxes and contributes the asset under code sec. 351 for stock at FMV.

>>Is there a partnership or not?<< Of course there was a partnership and the partnership should file a tax return. The client should file a 1040 Sch-C for the gross and issue a 1099Misc to zero the Sch-C and transfer the income from himself to the partnership. The 1099's probably are not all the income that needs to be reported.

Since the business has filed its tax return with "legal name dba name" the IRS computer should recognize either name for a match. Even if there is no match, so what .. there is no penalty and it just causes a reply. After all, the government employees have to have something to keep them busy and out of our clients hair. :)

IRC§ 267(a)(2) says that >>an accrual basis taxpayer [ie:Corp in your case if accrual basis] cannot deduct an expense payable to a cash basis related party until the amount is includible in income of the recipient [ie:shareholder in your case]<<. Obviously a cash basis corp cannot deduct unpaid interest if an accrual basis corp cannot. However, the key here is what is "includible in income of the recipient"? A shareholder loan greater than $10,000 specifying an interest rate lower than the AFR (Applicable Federal Rate) is referred to as a "Below-Market Interest Rate Loan" [iRC§ 7872(e)(1)]. Such "unstated" interest as calculated by IRC§ 7872(e)(2) or IRC§7872(e)( B )is includible in the shareholders income much the same as OID interest. However, imputed interest under AFR only apply to certain loans, basically those loans connected with the sale or exchange of property, patent rights, annuity contracts, acquisition of 197 intangibles, divorce payments and property settlements payable in installments, and certain other contracts. As you can appreciate from your research on this subject, this is a rather complicated subject that little guidance (or simple explanations) is offered in publications. Therefore, if this was my case, I would document the current loan with appropriate interest and terms and forget about the past.

Which name on the 1099 really doesn't matter as long as the federal ID number is correct and the receiver of the 1099 recognizes the payer.

2009 Publication 15B, page 6: >>S corporation shareholders. Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee’s wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee’s wages subject to social security, Medicare, and FUTA taxes.<< Form 1120S instructions, page 15: >>Report amounts paid for health insurance coverage for a more than 2% shareholder (including that shareholder’s spouse and dependents) as an information item in box 14 of that shareholder’s Form W-2. << I know it is early in the tax season, but come on guys!

Get real. This corporation was born dead and should be buried. Even the government doesn't try to collect from the dead. Hold a memorial service with your clients and move on with a new corporation.

In my experience it is not worth your time to deal with this situation further. Give the man copies of everything he wants and be done with it. If he refuses to pay for your service, forget it and consider it advertising or a cost of doing business. This guy will bad mouth you for years if he is not happy. However, you will be in the position to say he is the kind of person that doesn't pay their bills.

There are no shareholder loans to convert to equity!!! There is no second class of stock!! There is no law that keeps a shareholder or non-shareholder from paying anything they wish to pay including the debt of others. In my opinion it is too late for the shareholders to claim reimbursement for expenses that were not claimed in a reasonable time from occurrence. I would file the tax returns and request abatement of any penalties when they are assessed. I would take the position that filing zero payroll tax returns, and sales tax returns, did not change the fact that the entity never engaged in any business.

>>That pretty much seals it as a contribution of capital in my book<< Hog wash! Unless the books recorded it as a capital contribution it is simply a loan that is not documented in the best form. There is no IRS requirement that a loan be written. There are instead procedures for imputing interest for such loans. This client should simply create a loan document now to clear the situation and pay off the debt.

And capital loss carryback or forward are still not netted with future ordinary income.

Well... I would look at the books and see how the money was recorded when the shareholder deposited it in the company books. I doubt the shareholder intended to contribute capital and intended to take his money back when the company could afford to pay it. It is usually only the IRS that likes to call it a capital contribution. Even if it is capital there are procedures to return capital as tax free.

Yes, and that would relate to a certain number of shares that were issued. Since the issued stock is "no par" the $500 can be any number of shares up to the 1,000 authorized by the certificate of incorporation. 1,000 shares is the max that can be issued unless they go back to the state to get more authorized. You don't change the amount as it represents the amount paid by the shareholder for the shares. You say "oh my.. we lost money" or "there is an error in the books because someone does not know what they are doing".

The "sale" of the asset at FMV must be reported on form 4797 attached to the 1120S. Sale price is FMV. Sounds like the S-corp must recognize a loss on the sale and pass the loss thru to the 1120S-K1 for the shareholder's 1040 tax return. The shareholder will now have a lemo with tax basis of FMV.

Fact is there is no IRS requirement that a corporation have any resolutions or corporate minutes for anything. However, there are IRS requirements for certain "plans" and in fact it is a good idea to have such minutes. Trouble is that minutes can be used against the taxpayer as well as help the taxpayer. Therefore, be careful about what you put into corporate minutes.

An excellent post gailtaxed! I'll bet the lease company even claimed sec. 179 depreciation after putting the lease vehicle in use with this client.

Although the closing (deed) for the purchase of the land is a factor, I was referring to the legal transfer of ownership of the pre-fab building that becomes the residence. Having previously owned land that will be used does not necessarily start the date of "purchase" for a residence under construction, in my opinion. In fact, if the land purchase was before the law that also would not qualify for the credit. Purchase/closing on the land date would not itself mean anything to do about construction unless there was some contract to construct (assuming taxpayer does not use the hammer himself as in this case). I still believe the date of purchase of the residence was when the owner closed on the financing for the building to be delivered at a later date. As I understand this financing/closing date was prior to the date of the law that would allow the tax credit.

I also order the $20 IRS Publication DVD from [email protected]

This lawyer knows what he/r is doing. Basically an insurance trust is to get the insurance proceeds when paid after death out of the estate for estate tax purposes not income tax purposes.

>> signing a contract does not constitute a home purchase under Section 36 as quoted above. << I fully agree, however, transfer of legal title at the closing is a purchase. So now the only question is was the taxpayer constructing a residence as defined under the code 36? In most contracts for purchase the closing on a home is after the construction. I believe the delay in closing was how the code was written to accommodate construction.

>>Old Jack are NOT telling you is that a few years ago - due to abuse on The Tax Book webboard - they were banned << Evan: Well.. I think Jainen said it pretty fair about the ban. That was many years ago and as Jainen said we have both talked about it on this forum. Since you are new to this board it is reasonable to say that you speak out of ignorance of the facts. However, I will add, as I implied in my post above, I was banned immediately after I disagreed with Bees Knees (an author) on a tax issue. Truth is he did not want to be shown as being wrong and it is his board. Being banned is meaningless as one can join under a different name. I was told the author made a comment on the board later that I was probably still on using a different name. I have never posted on their board since the ban and have no need to post there. I have other boards that I post on and I did so before their board started. I resent the statement that the ban was due to my abusing the message board. Especially since you were not even around at the time. Most of us that were banned helped make their board popular when it first started. My posts above are purely stating my opinion. Your post Evan didn't even state an opinion on the books so why did you post? Are you associated in any manner with the tax book? One thing the moderators of this board have made clear is that personal attacks will not be tolerated.