Discussion:Basis issue
From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Basis issue
| 11 April 2006 | |
| I have a new client has big losses no basis in "S" corporation. He can not enjoy with his losses due to no basis. I am thinking to adjust his basis against AAA A/C. Distributions other than dividend distribution. He also has no shareholders' loan as liability. He has loan to shareholders as asset which I am planning to transfer in equity.
Please advice if you have any better suggestion. | |
| 11 April 2006 | |
| ?? Huh? A. AAA counts as basis, so if there's AAA, then he can take losses. But B. Bad Bad Bad, that offsets that AAA. He's taken out more money, probably by using borrowed money, than he's entitled to and is treading on very thin, maybe already broken, ice. If there's no hope of some profits soon to offset the Asset acct and refill basis, you need to decide whether you should just whack him with some tax on that income, clear up the equity, whatever. We need more details. You need more counsel. | |
| 11 April 2006 | |
| Just so I can read along and learn, please clarify what AAA is.
Thank you. | |
| 11 April 2006 | |
| Accumulated Adustments Account (Rough equivilant of Retained Earnings) | |
| 11 April 2006 | |
| May have to show gain recognized due to distributions, looks like. But I seem to recall there is some issue regarding timing of the distributions, losses. There is some mandated sequence. If sequence was 1. distributions (assuming he had basis as of 12.31.04), then 2. basis adjustment from 2005 loss. He may avoid the gain from distribution. I dont have time to look it up myself. | |
| 11 April 2006 | |
| Speaking of S Corp basis, my client has $70,000 of loss carryforward, which he has not been able to use; not because he doesn't have enough profit in the last few years, but because his distributions after profit don't leave any room to carryforward the loss (-0- basis). In a case like that, with $60,000 net income in 2005; (after $60,000 salary paid to him )and 60,000 distributions to him (again leaving -0- basis), can he still take a Sec. 179 deduction since his overall personal income is positive? Can't decide if I should do MACRS depre. or Sec. 179 | |
| 11 April 2006 | |
| sec 179 can be suspended at corp level. but I don't think the sequence is:
1. ord income. 2. distribs reducing basis 3. sec 179 deds. there is a ordering sequence that may affect , I think WILL affect your options. | |
| 14 April 2006 | |
| The other issue is that he is trying to sell his business in 2006. He has $70,000 NOL carryforward; -0- basis; Can the NOL carryforward reduce the capital gain he may incur due to the sale? | |
| 14 April 2006 | |
| S corp cannot have suspended loss(es) carryforwards while making tax-free distributions to SH. Unless the NOL CF is at the SH level from other business(es). | |
| 14 April 2006 | |
| Let me restate: S corp cannot have suspended loss CF while making tax-free distributions to SH.
Perhaps the NOL CF that you have not been able to use are at individual SH level and come from a different business loss. | |
To join in on this discussion, you must first
log in.
