OldJack

Well.. it could be Jainen is just busy doing taxes or it could be because of the many nonsense and NT posts on this board that take time to read. He is still posting on other forums.

Well... I don't know how you can say there is only a liability of $400. This is a corporation that is like a separate person. The shareholder owes the corporation $2,450. He should pay up! You must remember that the shareholder does not "own" anything in the corporation. Rather, he owns a piece of paper that allows him to receive tax attributes, profits, losses, and/or distributions from the corporation. The $2,450 could be treated as a tax-free distribution, but that would probably result in it being taxable to the shareholder as it would most likely exceed his tax basis in the corporation. Now if you are talking about liquidating and canceling the corporation with the secy of state that is actually the same story. The Shareholder should pay his debt and the corporation should use the money to pay the liabilities. The corporation would then pay the shareholder(s) the remaining assets (cash) and issue a 1099 showing a liquidating distribution so the shareholder can claim a capital gain or capital loss on their personal tax return.

Well... I always thought that real estate taxes and mortgage interest were deductible for such a property on Sch-A.

Assuming the accrual method of accounting is going on. Assume the S-corp has never been a C-corp. I think you mean R/E = $2000 in the next to last item, otherwise your 2007 numbers still would not balance. As I understand it your 2008 ending balance sheet would show $2,450 in assets ($2500-$50) with Accounts Payable of $850 ($500+$350) and Retained Earnings of $1,600 ($2000-$400). Your M2 line 1 would be $2,000 the beginning balance in the AAA column. Your M2 line 4 would be $400 the loss for the year in the AAA column. Your M2 line 6 would be $1,600. Your M2 line 8 would be $1,600 the ending balance in the AAA column.

How does that effect us here? I feel like giving a yahoo!

Your numbers at the end of 2007 do not balance? How can you expect us to get your answer that would be in balance?

Is Jainen missing?

Well... I have to disagree with the concept of using the effective date as determining how income and expenses are reported. If in fact there was a Sch-C business entity operating for a portion of the year it should be reported as such. For tax purposes a sole proprietorship and a corportion are two separate tax entities and income and expenses should be reported in accordance with what entity incurred the income or expense.

They need to file partnership tax return and account for the expenses. Odds are those so called expenses included the purchase of assets that cannot be depreciated or expensed as they will flow thru to the individual owners in liquidation.

Agree with Taxbilly.

>>For those less astute being included in the gross estate is what gives the property the stepped up basis. << And the reason the government won including it in the estate was because it was "gift" property where title had passed.

HOW SMART IS YOUR RIGHT FOOT? You have to try this please it takes 2 seconds. I could not believe this!!! It is from an orthopedic surgeon..... ........ This will boggle your mind and you will keep trying over and over again to see if you can outsmart your foot, but you can't. It's pre-programmed in your brain! 1. Without anyone watching you (they will think you are GOOFY!!) and while sitting at your desk in front of your computer, lift your right foot off the floor and make clockwise circles with it. 2. Now, while doing that, draw the number " 6 " in the air with your right hand. Your foot will change direction. I told you so!!! And there's nothing you can do about it! You and I both know how stupid it is, but before the day is done you are going to try it again, if you've not already done so. :spaz:

You should also read 2008 Small Business Quickfinder Handbook, page C-4 regarding Section 351 exchange with property subject to liabilities. I don't know if this applies to your specific case but check out the examples. >>Property Subject to Liabilities In a Section 351 exchange, if a shareholder contributes property subject to liabilities, the shareholder's basis in the stock received is reduced by the amount of liability relief. If liabilities exceed the shareholder’s adjusted basis in the property, gain is recognized on the excess and the shareholder’s basis in the stock is zero. Exception: Under Section 357( c )(3), liability relief is not included in the computation if the payment of the liability "would give rise to a deduction."<< I get the impression that maybe the S-corp has deducted the payables before actual payment. When payables are a part of a Code §351 they are not deducted by the S-corp until they are actually paid even though the S-corp is on the accrual basis. The same is true with receivables that are not recognized as income until actually collected. Also page C-4: >>Generally, a corporation's basis in property received under Section 351 is equal to the transferor's basis. However, Section 362(e) includes a carryover basis limitation to prevent (1) the importation of built-in losses into the U.S. by transferors who are not subject to U.S. tax and (2) the double deduction of a single economic loss by transferring built-in loss property to a corporation in a carryover basis transaction with the transferee deducting a loss on the sale of the property and the transferor deducting a loss on the sale of stock.<<

This case appears to have been only arguing about including the property in the gross estate. We should not forget an important factor.. that the children received the income from the farm. Parent cannot assign farm income to others if the parent owns the property. It was a completed gift. I fully agree that had the children not received such benefits of ownership there would be a life estate that could be stepped-up on death of the parents.

Had the life estate not been with a related party I might agree, but that is not the facts in this case. It is questionable, in my view, that this was a life estate, rather an obligation or understanding of trust accepted by the children to care for their parents. There appears to have been clear actions by parents and children to transfer the property as a gift (probably to qualify for Medicaid if needed). You can't now just ignore those transactions because it would save taxes. Do you think if your parents live in your house they would have a life estate?

Well.. those facts certainly make a difference. I would argue that when the members of the LLC received the property and income from the LLC they had accepted a gift of the property and the parent had relinquished ownership even though parent was allowed to remain on the property. Any such parent minor "remainder interest" would have been irrelevant. You can't get to inheritance (with a stepped-up basis) from what is truly given and accepted. In my opinion it is clearly a gift with the LLC's basis that of the parents. Its too bad these folks followed some "tax expert's" advice. BTY, when you look at the transfer document you will likely see the $1 "plus other valuable consideration" type terminology. The $1 dollar is meaningless with regards to income taxes.

I agree partially with RoyDaleOne that $1 was not adequate for a sale and I doubt that amount was ever tendered. Further, I believe there was a gift of the parents tax basis when the title to the farm was placed in the LLC. As the parents did not own the farm at death, there is no step-up in basis to FMV regardless if they retained an interest by living there. Although, I could see an argument for that position I would think placing the title in an LLC hurts that position due to the concept that federal tax recognizes property by state law. I would challenge the 1065 tax preparer to amend LLC tax return to show taxable gain based upon parents gift basis.

>>There is a reason I became an accountant. I like boring.<< Typical KU graduate? :P

Not deductible.

Yes. As you said. FMV would normally be what it was sold for in this case.

Actually Joan I have had back problems since I was in my middle age. I can see a possible deduction for the difference between a "special mattress" and a reasonablely priced mattress, but only in a very specific situation where the doctor has prescribed it as being medically necessary. I don't believe that a deduction for the entire mattress could be justified on audit. I would be prepared with documentation to justify as I would expect an audit.

You have to file or you could be subject to the penalty. 1120S Instructions: Who Must File A corporation or other entity must file Form 1120S if (a) it elected to be an S corporation by filing Form 2553, ( b ) the IRS accepted the election, and ( c ) the election remains in effect.

Our thoughts and prayers are with you.

I am not sure of the answer, but I would ignore the final checkbox and go ahead and use the same EIN filing a tax return as though nothing had happened.

Its time for a reality check! A mattress is for comfort and not a medical expense. :rolleyes: