Discussion:Basis/Deduction of S Corp Losses/profits
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TexasTango (talk|edits) said: | 10 February 2006 |
| Question:
Stock basis questions for sub s losses/profits: We are trying to determine the deductibility of Subchapter S losses from one entity against the profits of a second entity. The entity structure has more than one layer and more than one entity. Parent, Inc is the parent company to Child, a 100% wholly owned subsidary. Parent and child both elected subchapter S status as of Jan 1, 2005. Parent paid $180,000 for the stock of Child several years ago. Child has $428,000 of prior C corp accumulated retained earnings and 51,000 of paid in capital. For 2005, child has a loss of $ 258,000. Parent has two shareholders, one at 80% the other at 20%. The 20% shareholder has direct loans to child for $325,000. The majority shareholders has zero basis. On jan 1 2005, child transferred $341,000 of inventory to parent who in turned transferred the inventory to a new entity (a limited partnership). parent is now a 98% limited partner in a container business. The container business has a profit of $250,000. For the shareholders of parent, will these losses and profits offset at the parent level? Help!! | |
| 11 February 2006 | |
| Presumably, Parent made a QSUB election for Child. Thus, Child is a DRE and the loan to Child will be treated as a loan to Parent.
Since Child is a QSUB, all of its losses will be reflected on Parent’s S Return. Therefore, the basis limitation for loss purposes will be applicable to the 80% shareholder since he has no stock basis or debt basis. Did Parent make a 338(h)(10) election for Child? | |
TexasTango (talk|edits) said: | 18 February 2006 |
| Yes parent made a QSUB election for Child. What is a DRE?
I have done a little homework since I wrote the question. I now beleive that with the QSUB, for federal purposes the child does not exist. All operating activity will be reported by the parent. The question changes a little. The parent(freight/trucking company) is a 98% limited partner in a profitable business. Can the income from the limited partnership offset the losses from the operating business for the shareholders of the parent? When I enter the K-1 info into the Lacerte Tax program from the partnership as a limited partner, and the losses from the trucking business, they offset without any diagnostics. | |
| 19 February 2006 | |
| DRE stands for disregarded entity.
The 338(h)(10) election would allowed your client to step up the basis of the acquired assets if your client acquired the stock of an S corporation. | |
| 19 February 2006 | |
| If an S corp buys equipment with a bank loan (or financing from the equip manufacturer - such as John Deere, etc), and the shareholder gets their personal name on the debt as the primary debtor and lists the S-corp as the Co-signor (co guarantee of the debt), do you think this would give the shareholder some "debt" basis in the s-corp (for deducting losses)? Note, the corp makes the monthly loan payments on the loan. | |
| 10 March 2006 | |
| I have a similar question as Scott: But what if the S Corp is the primary debtor and the individual co-signs. Does this give some basis to the s'h? Thanks | |
