Discussion Archives:Can I Write Off My Client's $20K Investment

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Discussion Forum Index --> Advanced Tax Questions --> Can I Write Off My Client's $20K Investment


Discussion Forum Index --> Tax Questions --> Can I Write Off My Client's $20K Investment

Khardge (talk|edits) said:

7 April 2012
Here's the situation. My client invested $20K into a C Corporation. The Owner of the C-Corp, owns a restaurant and is now currently opening a second location. The 2nd location, my client will be a 49% partner in and invested the $20K to help fund the start-up costs of the 2nd location. This is a weird situation to me because the way I figure it, the owner of the C Corp should have issued shares to my client so my client can be considered a shareholder, correct? But is there a way I can classify this investment on his personal return so he can capture some of what he invested? I don't think I can but wanted some more opinions in case I'm wrong. Thanks.

Ckenefick (talk|edits) said:

7 April 2012
I'm lost

MP-JD-LLM (talk|edits) said:

7 April 2012
I think that you must determine the legal relationship of your client. Does he own stock in the C Corp or, alternatively, is he a member of a partnership in which the C Corp is the other partner.

CathysTaxes (talk|edits) said:

7 April 2012
First things first, please fill out your profile. Your post is confusing. How can your client be a 49% partner in a corporation?

Also, I can't think of any ways you can classify this investment on his personal return to capture some of what he invested.

Options:

1) he loaned $20,000 to the shareholder, in which case, he won't get anything unless the loan is paid off or defaulted on. 2) he purchased 49% of the shares Nothing to write off unless he sells part or all of his shares or the c corporation shuts down.

Podolin (talk|edits) said:

7 April 2012
But is there a way I can classify this investment on his personal return so he can capture some of what he invested? Everyone agrees your facts are confusing, and we need to have clarification plus your profile. But I will nonetheless speculate that, since your client thinks he is a 49% partner in only the second restaurant, then the C corp is the 51% partner. (I sure hope he has a way of making sure the second restaurant's statements do not include any of the first restaurant's expenses). If my guess is right, there should be a partnership agreement, he should have a copy THAT HE SIGNED, and he gets to deduct his share of that partnership's losses, subject to the basis rules, etc.

Khardge (talk|edits) said:

8 April 2012
Thank you everyone. Yes, I was actually just as confused because it seems my client and his friend (who owns the C Corp for the first restaurant) did not do everything properly. I advised him to get contracts drawn up. Also, no stock was issued. The arrangement they made is that my client will own 49% of the second restaurant and will be an employee as well. Podolin you are correct, it seems as though the C corp (his friend) is the 51% partner and yes, advised him to ensure that all records be kept separate. The way I see it, next year's tax filing will be easier because I am going to coach my client to make sure he receives proper documentation for the 2012 transactions including his W2 as an employee, etc.

So I think I figured correctly. That my client cannot capture any of the investment money he put into starting up the second location.

Oh, and I did update my profile now. Thanks.

Podolin (talk|edits) said:

8 April 2012
So I think I figured correctly. That my client cannot capture any of the investment money he put into starting up the second location. Why not? If it is indeed a partnership, losses flow through. Or, are you saying the business of the second restaurant has not yet begun as of 12/31/11?

Ckenefick (talk|edits) said:

8 April 2012
Facts are lacking. There's one restaurant, there's a second restuarant. There's an original owner, there's OP's client and there's 1 C-corp that we know of. We don't know if Restaurant #2 is a separate entity, unto itself, or not. Who knows. Based on the sloppiness of this whole thing, it's doubtful that even if Restaurant #2 is indeed a separate entity, it would have a C-corp partner. Seems a bit too sophisticated for such unsophisticated people.

Okie1tax (talk|edits) said:

8 April 2012
IF he is a partner, why is he drawing a w-2? He would be a partner, not an employee.
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