Discussion:S--corp office in home
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Discussion Forum Index --> Tax Questions --> S--corp office in home
| 9 May 2007 | |
| S-Corp single shareholder is moving office into her home. What is the appropriate way to structure the transaction to obtain benefit of "office in the home" expenses? Can the S-Corp pay the shareholder rent for the space? | |
| May 9, 2007 | |
| No, can only reimburse for expense. So allocate the costs and have the corp pay her for them. Other threads on this. | |
| 9 May 2007 | |
| Agreed under 280A(c)(6). But did you see Beecher, (CA9, 3/23/07) 99 AFTR 2d 2007-712? I am reading the summary from the RIA Newsstand 3/27/07. I have not read the whole case. H & W each had separate C corps that employed each person. Both corp offices were in the home. Corps paid individuals rent, generating net income. Taxpayers had other rental properties generating losses. The issue was the vailidity of the reg recharacterizing self-rental income as nonpassive. The fact that 280A(c)(6) wasn't even mentioned, at least in summary, makes me wonder if I read too much into that Code Section. It doesn't appear that the court had issue with the arrangement between the entities. | |
| 9 May 2007 | |
| JAD, section 280A doesn't apply to C corps. I haven't read the case you mention, but it would make sense that if it dealt with C corps then section 280A wouldn't be mentioned. | |
| 9 May 2007 | |
| 280A(c)(6) discusses the treatment of a rental to an employer. So it applies to the employee who is renting to the corp.
(6) Treatment of rental to employer Paragraphs (1) and (3) shall not apply to any item which is
attributable to the rental of the dwelling unit (or any portion
thereof) by the taxpayer to his employer during any period in
which the taxpayer uses the dwelling unit (or portion) in
performing services as an employee of the employer.
| |
Michaelstar (talk|edits) said: | 9 May 2007 |
| One of the benefits is that they will save the rent they were paying...... Home office - exclusive use - sort of like a word match game. | |
| 10 May 2007 | |
| JAD, section 280A(a) provides that "[e]xcept as otherwise provided . . . in the case of a taxpayer who is an individual or a S corporation, no deduction . . . shall be allowed . . . " This general rule does not apply to C corporations.
Section 280A(c)(1) and (c)(3) provide exceptions to the general rule of section 280A(a). Since the general rule does not apply to C corporations, the exception to the rule would not apply either. Section 280A(c)(6), which is an exception to the exceptions, provides that (c)(1) and (c)(3) do not apply with regard to the "rental of the dwelling unit . . . by the taxpayer to his employer". If (c)(6) makes the exceptions not applicable, then the general rule applies. The bottom line is that section 280A DOES limit deductions related to the rental of a dwelling unit by an individual to an S corporation, but section 280A does NOT limit deductions related to the rental of a dwelling unit by an individual to a C corporation. | |
| 10 May 2007 | |
| IntlTax, thank you for hanging in with this conversation. If I have misunderstood this Code Section, or worse yet, came to an incorrect conclusion for a client several years ago, then I need to clean up the mess.
I reread this section and even took notes. I think the source of our disagreement - perhaps my misunderstanding - is in 280A(a). I read this section to mean that it applies to individual and S corps. If you are an individual, this code section applies. If you are an S corp, this code section applies. Am I correct in understanding that you read it to mean that 280A applies to individuals renting to S corps? If that is what you mean, and if you are correct, then I agree with your conclusion. But if it means that 280A applies to an individual as a separate entitiy and to an S corp as a separate entity, unrelated and not necessarily as part of the same transaction, then I think my read of 280A(c)(6) is correct, that an individual renting to a C corp has limited deductions under this section. | |
| 10 May 2007 | |
| JAD, after your post today and another look at the statute, I must admit that I believe I was wrong. If the individual owns the residence, then the general rule is that no deduction is allowed. Sec. 280A(a). If the individual rents to his/her employer, regardless of whether the employer is an S corporation or a C corporation, then no deductions are allowed related to the home office deduction and/or related to the rental. Sec. 280A(c)(1), (c)(3), and (c)(6). Thanks for persevering | |
