User talk:DgR

From TaxAlmanac

Your S-corp formation Article

You asked a question today, but you put it into an article, S_corp_formation, rather than posting it to one of the discussion forums. It's unlikely anyone will notice it there, to reply. As yet, I haven't figured out how to "move" articles into the discussion forums, so you should probably just start over with Ask New Tax Question.

Trillium 21:43, 19 November 2008 (CST)

Here's the text of the article, in case you just want to copy it to paste into a discussion:

"I may need to go to a re-fresher course in s-corp's as to determination of how much for stock vs s/h loans. I recall something about "thin corps". Can anyone suggest a good course (even if self-study)? Over the years it seems that capital stock #'s on s-corps have just gotten smaller and smaller and the s/h money to start-up as s/h loans bigger & bigger. Any particular rules of thumb?"

Update - I was able to move your article today - you will now find it in the Tax Forum. ....Trillium 14:41, 5 December 2008 (CST)

interest tracing

Hi,

You asked: "My direct question should really be, what is everyone doing out there in return preparation when clients have mixed use, business etc. & personal use on equity money out refi's and outright equity loans, something that in real life happens a lot. Are you making the election, or just plain allocationg.? " I want to respond, in case my experience is helpful to you.

I have worked for several different firms, and not one of them ever made the election. The interest was simply traced according to the use of the loan proceeds. What I read quite a while ago was that there was an unresolved issue as to whether one loan could be traced to multiple sources, and rather than call attention to the issue by making the election, it was better to just do the tracing. Especially since there doesn't seem to be a specific requirement in the code or regs that a specific election be made. Plus my recollection is that form instructions don't require an election, and I believe that RIA recommends an election be made, because of its importance, but that is different from what RIA says when an election is required. Of course, these latter two are not authoritative.

However, all that said, when I do this tracing for my client, I let them know that there is a huge issue here. Election or no election, the issue remains: can we trace one loan to multiple uses?

I have a client with very complicated tracing, and his equity line of credit is traced to 4 different businesses. He was audited, and I met with the auditor this week. The auditor, who had about 15 years of experience, did not seem concerned about this issue. I know that his work will be reviewed, so we will see if the reviewer has a problem with it.

I am posting this information to you rather than on the thread because the last time I posted a tax position that I was taking and that an auditor had accepted it, a couple of other posters were really rude to me. They disagreed and felt that my client and I were cheating. I have just had it with so much rudeness and generally horrible behavior on this board, so I am really limiting my participation. Nevertheless, I hope that this is helpful for you.

NOL Carryback reducing future PAL

Did you ever get an answer on this? What did you decide to do?

NOL/PAL

I am researching the exact issue that you dealt with here. I found this by googling and evetually got to this site. Can you tell me how you resolved your issue? I can't find anywhere that discusses recalculating the PAL carryover. I found someone who wrote an article on calculating the NOL on Form 1045. I sent him the following e-mail. I would love to hear your thoughts. You can e-mail me at izzycpa@ziplink.net or call me at 617-277-6604. Thanks.

Great article on Knol. I am a CPA with over 30 years experience and I am going crazy over a technical matter relating to the NOL. Since you wrote that article, perhaps you have some insight. The question relates to the passive activity recalculation in the "after carryback" column. As I read the instructions to Form 1045 and also Publication 536, I understand that in the carryback year, I should use the refigured AGI to refigure my allowable passive activity loss. In my case, the client was limited to $17,000 of PAL in 2007. After the carryback, he is entitled to a full $25,000. I recalculated the 2007 AGI using the extra $8,000 PAL; I recalculated miscellaneous itemized deductions on Schedule A (1040) based on the (now doubly) refigured AGI; and I recalculated the tax based on this much lower taxable income, now reduced by an NOL, an extra $8,000 PAL and some extra itemized deductions. Great result for the client. Note - not enough NOL to completely kill the 2007 taxable income, thus no carryforward from 2008 to 2009.

HERE IS THE QUESTION: I don't see anywhere where it tells me to recalculate the PAL CARRYFORWARD from 2007 to 2008 or 2009! If, for example, my original PAL in 2007 was $30,000, and I originally used $17,000, it means I carried $13,000 forward to 2008. But now I am actually USING $8,000 of the $13,000. In retrospect, I should only have $5,000 to carryforward to 2008. If, on my original 2008 return, I had a current loss of $10,000 and the $13,000 original carryforward from 2007, I may have used this $23,000 in calculating my 2008 NOL. Now that I have gone back to 2007 and used $8,000 of it - am I not double dipping?

I'll repeat myself, for my benefit, if not yours. I had a $30,000 loss in 2007 and a $10,000 loss in 2008. Total of $40,000. I used $17,000 on the original 2007 return and a total of $23,000 ($13,000 carryforward and a new $10,000) on the 2008 return. Total of $40,000 again. The $23,000 contributes to my having a 2008 NOL. I carryback the NOL to 2007 (please note that yes, I know I should go back to 2006 first, but there was no taxable income in 2006, so we won't deal with it; besides, the premise would be the same if we were going back 2 years). In my "after carryback" calculation in 2007, I increase by 2007 usable PAL from $17,000 to $25,000. I now seem to be deducting $25,000 in 2007 AND $23,000 in 2008. Total is $48,000! Did I just deduct the extra $8,000 twice?

The only thing I see that remotely seems relevant is the worksheet in Publication 536 addressing the carryforward from 2008 to 2009. There is a refiguring there of the PAL. In my case, I have no NOL left to carry from 2008 to 2009. And even if I did, I might still have used up the PAL in 2008 as in my example above. So how did I win an $8,000 extra PAL?

One final question: Would you agree that Form 1045, Schedule B is only used for purposes of calculating a. IF there is any NOL left over to carryforward from year to year and b. to limit that amount based on some reductions due to personal exemptions, refigured deductions, etc? Other than bringing Schedule B, Line 10 to Form 1045, Page 1, I see no reality to the calculations there as it relates to the rest of Form 1045.

I hope that you are academically challenged enough by this issue to respond. At least point me in the right direction. 30 years of this sh*t and I still want to know why things work out the way they do, even though there is no logic to the IRS code.

Thank for your time and for the ability to force me to crystallize the questions.

Izzy Zuber IZZYCPA 21:55, 4 November 2009 (CST)