Discussion:Basis in an S Corp and Bankruptcy
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Discussion Forum Index --> Tax Questions --> Basis in an S Corp and Bankruptcy
| 29 May 2007 | |
| I have a S-corp client that started a business by loaning 225,000 to the business. A good chunk of that was through personal credit card debt. Loaning that money gives him basis to take the losses. Now the client is filing bankruptcy personally and that credit card debt will be forgiven. My questions are: Does he still have basis in the S-corp via the loans to take the losses; does the S-corp still owe him that money back; does the S-corp have forgiveness of debt; if the s-corp pays him back after he brings the debt basis back up with income, is that income to him personally as he no longer has to pay the credit cards back; are there any other issues that I haven't even thought about?
Thank you in advance, Chris | |
| 31 May 2007 | |
| When someone files b/r and is relieved of debt, she must reduce "tax attributes" to the extent of the debt relief. Tax attributes are basis in assets, losses etc. Therefore, the sh's basis in the S corp would be reduced to the extent of the debt relief.
I do not know if the corp owes the sh for the loan after the b/r. Perhaps it doesn't matter because when the corp repays this "loan" it would be income to the sh who no longer has basis in the loan. The corp would not have forgiveness of debt income because this would flow through to the sh who would be taxed twice on the same (forgiveness) income. If he brings the debt basis up with income this is income to him. If the corp then repays the debt, there is no income to the sh, but her debt basis is reduced. | |
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