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Contents

Gift of Partnership interest

JR1-I have researched and used the yellow box but I am not sure of my findings on the issue of partnership interest.

A call from an individual who is not yet a client revealed the following. The client is 75% partner in a motel. His parents hold the remaining 25%.

His parents are considering giving him their 25%. All sort of issues here. It would appear that I must determine the value of the gift in regard to their partnership basis. Also, what effect would this exchange have on the shares of the partnership in which the soon will end up having 100%.

I'm thinking of having these folks contact an estate attorney due to the gift tax issues. The parents are elderley but not ancient. They could be around for a while.

LLC to be a Partnership

Hi JR1,

Thanks for your answers on the forum. Is there ever a situation where a single member LLC can form a partnership so they can file a 1065? In this case the client has two LLCs that are both elected to be S corps. Each LLC has its own tax ID number. A CPA I know here in CA says a partnership could be set up between two entities meaning the client could use his SS number as one partner and the LLC that has a Tax ID number could be the other partner. But I don't see how this can fly. Is this ever possible to do? Thank you very much for your reply.....Thomas

JR,

First, let me say thank you for your time here. I cannot tell you how much I appreciate it! Wow, so he can do this. He currently has two Single Member LLCs (lets call them LLC A and LLC B), both have real estate and both are currently elected as S corp for taxes. He actually wants to do what your client is doing, have one to hold rental properties, and one for flipping and other ventures that could be kept as S? Or he could set up two partnerships. Are you saying he can set up two partnerships like this:

LLC A - Form Partnership where two partners are LLC B (using LLC B's tax ID number) and himself using his own SS number.

LLC B - Form Partnership where two partners would be LLC A (using LLC A tax ID number) and himself using his own SS number.

Is this how it would be set up? Is there any reason why the IRS would object to a change in the election to partnership from the S status? He is the sole member (actually his grantor trust is but that just is a pass through entity to him and his ss number) of both LLC A and LLC B.

Thank you, Tom

LLCs and S Corp.

Hi JR1,

Your idea about having two LLCs and one (that holds the rental property) be disregarded and file schedule E is what I had initially suggested. However he was told this by prior accountant too, but the real issue is he does not want the rentals to be listed on his 1040 return which the Schedule E is. He does not want the properties to report on his 1040 when he has to show his 1040 for various things. He wants what he owns to be on a 1120s or 1065 with a K-1 to his 1040. In this case what other options can I offer him? Any ideas? By the way these were set up a few years ago and the tax elections made then so the 2 1/2 month period to change election is over.

Thanks again JR for your help here. I really appreciate it.

Partnership

In that case, is the S corp which flips a true corporation and not an SMLLC elected to be an S? If that is how it needs to be set up, and he is 100% shareholder of the corporation that elects S status, how is that any different than being 100% member of a SMLLC claiming to be the partner. It is still one person creating a partnership?

What would happen if I did what my CPA buddy suggested and created a partnership with 99% ownership by the client and 1% by his SMLLC using the LLC's tax ID number? I assume it would be disallowed but he said to do it?

Partnership

In that case, is the S corp which flips a true corporation and not a SMLLC elected to be an S? If that is how it needs to be set up, and he is 100% shareholder of the corporation that elects S status, how is that any different than being 100% member of a SMLLC claiming to be the partner. It is still one person creating a partnership?

What would happen if I did what my CPA buddy suggested and created a partnership with 99% ownership by the client and 1% by his SMLLC using the LLC's tax ID number? I assume it would be disallowed but he said to do it?

No more Circles

Sorry about the circles, I knew my CPA friend was smoking something! Ok, so to finalize and summarize. He could convert one of his two SMLLC's (the flipping one in this case) to a corporation and elects S taxation status for it. The fact that he is 100% shareholder of this corporation is fine because it is not a disregarded entity. He then creates a partnership for the LLC that holds the real estate where he is 99% and corporation is 1%. So now he has one LLC (taxed as the partnership/1065) and one corporation (taxed as an S/1120s). Do I have this correct! I think I do, but please confirm and thanks!!!

no more circles

Sorry about the circles, I knew my CPA friend was smoking something! Ok, so to finalize and summarize. He could convert one of his two SMLLC's (the flipping one in this case) to a corporation and elects S taxation status for it. The fact that he is 100% shareholder of this corporation is fine because it is not a disregarded entity. He then creates a partnership for the LLC that holds the real estate where he is 99% and corporation is 1%. So now he has one LLC (taxed as the partnership/1065) and one corporation (taxed as an S/1120s). Do I have this correct! I think I do, but please confirm and thanks!!!

LLC to Corp.

I have only been doing tax work for under 3 years and have never converted an LLC to a corporation. What is involved in it? How does it affect basis, etc.?

Both are already S status

You don't have to convert it, if you've already elected S status for it. For tax purposes now, it IS an S corp, so that works. If you do convert it, sec. 351 is the controlling section, but it just says that the LLC transfers to a corp status, all the same numbers roll over, you merely alter the Equity section to reflect Capital Stock and the Add'l Paid in in place of Jones, Capital. Nothing else changes. Either way, corp rules now apply, payroll for the owner and all that. Jeff


Both LLC's are single member but initially elected S status and been S status for last two years. For tax purposes, they are an S corp. as you say above. But both are SMLLCs. But to the IRS, both have S status. So in this case what would you do here? I know most SMLLC's do not elect S status but in this case both did.

Election Change

JR,

I talked to the client and he called the IRS this morning. He gave them his Tax ID number for the LLC, etc. and they looked at his account and told him that he could convert from his S corporation status to a Partnership since the S corp was the initial election. Are they giving wrong info here? There is a rule about changing from an initial election one time in the five year period. They told him if he wanted to back to an S corp. after changing the election within five years, then there would be a problem. Why not file the 8832 for the change in election and see what happens?

JR; You appear to have a lot of knowledge about LLC's. I think I have a straightforward question and wanted to see if you'll take a few minutes to make some follow up comments. If you have an LLC that has several investors that have large investments in the LLC and participate in meetings and so forth but may not be classified as material participation. If you have a large loss for the year I understand the large $ investors first have to satisfy the Basis Rules, which the loss applied against their basis would be equivalent or less than basis. They are considered Limited Partners but their losses to me are also at risk because there are no guarantees or loss limits and their loss can be equivalent to their total investment and possibly any further liabilities of the company. But, I guess they still have to pass the non-passive rule for Limited Partners for their loss to be recognized against ordinary income? Mainly that they participated in the business more than 500 hours throughout the year. I know it's hard to always make comments on issues without seeing the Operating Agreement and so forth but I just want to make sure I completely understand the IRS rules and it seems I get different answers from different people. If it's black and white that they must meet the non-passive rule then they'll have to go back and try to document their activity. Or, is meeting basis and at-risk rules enough?

Thanks in advance for your time if you are able to take a moment to give me some input.

denhogan@earthlink.net

HoganHero

Disregarding a New C Corp.

Thank you for your post to Discussion: Disregarding a New C Corporation. I'm getting tired of reading these questions that are essentially about not following the law because it's expedient or less costly to the client. DaveFogel 18:40, 10 January 2011 (UTC)

And it frees my time up for far more important things.


OTOH, I wonder if your exhibition of your faith in Him during the tax preparation process, and the attitudes that go with it might be considered an important thing. For myself, it seems that developing a relationship with clients and showing agape: by not hassling them about fees, savings on tax liabilities, and tossing in a few NT messages at appropriate times; may make mere tax return preparation a very important thing. Lately, it seems that having tax knowledge has been an important tool is assisting churches and para-church organizations as well. Just some thoughts. MWPXYZ 18:14, 2 March 2011 (UTC)

You remember Lawade is the one

who refused to give you her profile (until I blocked her temporarily). Kevinh5

Hello JR1.

I have read your posts about attaching Form 966 to the final 1120, and not worrying about the requirement that the Form 966 be filed earlier, 30 days after resolution or whatever.

I am getting ready to do exactly that. Would you still do it this way (assuming, as in my case, the client did not inform they wanted to dissolve until tax deadline time).

Thanks for a response if you get this and have the time.

Kendrick

Thanks JR1. I appreciate you getting back to me.

S Corp Basis and other good help

JR1, I came on here to comment that I'd been endlessly searching for some clarification on S Corp Basis for a client who insists on taking too many distributions...wanting to avoid Capital Gains tax. It seems a lot of the useful answers came from you! Now, that I'm on your personal page, I see even more on the subject worth reading!  :) Thanks again for your consistently helpful contributions. chris OCNumberz 19:30, 22 March 2011 (UTC)

Looking for a CPA in the Chicago area

Hello - I saw a post about S-Corps that you participated in. I am in the market for a CPA and would like to get some consultation if possible. Please email me at nmanaligod@gmail.com. I have converted over to a 1099 with the company I have been consulting with and I am looking at my first quarterly taxes coming up. Thank you.

S-Corp Question

Hi JR1, Since you are the S-Corp guy on this forum, I was wondering if you could help me out with the following question:

Discussion:S-CORP_-_Does_BIG_Tax_reduce_AAA_or_AE&P_or_both?

Much appreciation, --Wiles 11:42, 2 April 2011 (UTC)

Thanks for your concern, but

in Discussion:The End of the Forum :(, you, and many others stated that you'd rather have a forum without the necessity for people to post their profiles or to use the yellow box. I'm not interested in such a forum. You are free to volunteer to TDoyle to become a moderator and establish and enforce whatever rules (or lack thereof) you would like. I'm not interested in participating in a forum for beginners (including those whith designations who have obviously never read Pub 17). I'm only interested in participating in a forum for professionals who can demonstrate that they know how to find the basics.

Interestingly, I did notice that, after I stopped directing people to the yellow box or ask for profiles: 1) Several questions went unanswered (in spite of those who said they would love to answer more questions if I weren't there to point out the yellow box. 2)A good number of posts received WRONG answers, which were never corrected by others. No one bothered to direct them to the same question answered three years ago by Riley2 or others. 3) DaveFogel was run ragged with people asking the same questions over and over (and some, like Jeff-Ohio, never appeared to have even read his answers to thier questions, merely asking again and again in the same thread).

Again, this site needs more volunteers to be co-moderators. Trillium and I have been doing this for over 3 years with no pay and no thanks. It's time for others to step up to the plate.

Kevinh5

S Corporations for dentists.

Hi JR,

I am a new member who recently joined the community here, and I have to say that I did it because of a comment of yours posted a while back. You mentioned in a forum on S Corporations for dentists that a dentists couldn't benefit from the SECA tax benefits that an S Corp offers because of the reasonable compensation requirement. It's my understanding that a typical dental school graduate will receive between $60,000 to $150,000 in compensation for working at a practice, and between $150,00 to $500,000 in compensation after completion of a residency (depending, of course, on the type of residency completed). It is also my understanding that absent abuse by shareholders of an S Corporation, such as in Rev. Rul. 74-44, and in Radtke v. U.S., 895 F.2d 1196 (1990), (where little to no salary was drawn by the shareholders), that the Service would have a hard time re-characterizing the distributions as wages. An ALI article from 2005 supports this.

So, I was under the impression that a dentist with a completed residency could claim the $106,800 (maybe less) in salary, and that any distributions over this amount would receive qualified dividends treatment and not subject to the 2.9% HI taxes. Many successful dental practices can easily clear $300,000, if not more, saving thousands every year for the practice. In my mind, assuming the dentist can clear enough in salary to make an S Corp worth it, the SECA tax savings makes the S Corp the best choice for a dental practice.

Would the Service not respect the 100K as reasonable compensation? Am I just wrong in assuming that it is not likely that a dentist would clear the 100K?

Thanks in advance,

Just started 16:32, 28 April 2011 (UTC)

Thanks!

Thanks for the clarification, and the quick response. Time is a valuable commodity when studying for both the bar and private practice, so any help with problems is greatly appreciated. I didn't even think to consider that reasonable compensation will increase with earnings.

Thanks again,

Thomas Just started 21:52, 28 April 2011 (UTC)

JR,

I have a question I posted regarding an acquisition and was wondering if you would take a look.

Thanks,

Greg

S Corp - another 1099 question

Aloha JR, I asked this question today, but I may not get a response, and I've looked at a ton of the other threads and don't see this question addressed. My question is: What happens if a 1099 MISC is issued to an S Corp shareholder, then later IRS reclasses it to wages and wants taxes, penalties and interest, assuming the recipient already paid the taxes? Will they assess penalties as of the date the recipient made payment? Hope you are still checking in here, I don't see you posting as frequently as in the past. Please don't go away all together.Actionbsns 01:26, 20 May 2011 (UTC)

1099 issue

Thanks Jeff for the insight. The corporation is closing and has had no income since mid 2010 so losing the S election is not a serious concern. If this reverts to a dividend and taxes at that level, theoretically, what would be the cost in tax dollars? P/R tax and penalties would be around $18,000. SE tax on the 1040 are around $12,000, I think. I talked with the client yesterday and she decided the 1099 was the best way understanding the possibility of losing to payroll on audit. I think the other shareholder is going to be upset, or probably already is, about the $80,000 any way you look at it. Even though she has never been active or contributed to the income, her accountant seems to have overstated the value of goodwill, so the negotiations to close the corp are locked up between the two of them. Maybe we should re-think the P/R vs 1099 issue. Thanks for taking the time to respond.

And more

Thanks Jeff, I just e-mailed the client to call me. The last post to my question has me worried and I want the client to understand the ramifications of losing the 1099 to payroll. I am very nervous about this one and want to be sure I'm as enlightened as I need to be and so is the client. I asked her yesterday if she and other SH were on speaking terms and she said not really, but the issue seems to be focused on the value of goodwill. I'm not sure if the 80 grand is at issue between the two of them. I was blissfully unaware of this when it happened last February, she has only been my client since September and the business that is closing has never been my client except for this tax return. All of which makes it so much more fun. Simplistically, I still think the 1099 is the easiest and cheapest way to go.

Titles

I don't want to muddy up the distribution discussion with non relevant stuff. I did a yellow box search using 1099 shareholder distributions, then shareholder distributions, then distributions. That discussion didn't come up. When I entered W-2 1099 shareholder distributions, it came up. The yellow box is hard enough to use, I'm sure I could get better results if I new what to enter in a better way and sometimes if the titles were more direct. What about something like "1099 and problematic distribution", do you think that might work better? This is my last question on the issue, I promise. Actionbsns 00:01, 24 May 2011 (UTC)

Quoting Old News....sorry about that

JR, In our discussion about 'Problematic Distributions', I apologize for referencing (off the top of my head, no less!) things I recall you saying several years ago. My opinion today on any given issue will probably grow and change in coming years, and for me to take things you've said out of context and repeat them now, was not really necessary. But, I did find the discussions I was talking about:


S corp distribution in excess of basis Feb/2008

S Corporation Distribution in Excess of AAA Jul/2008


Since we all file away mental notes on who seems to know what they're talking about and gravitate towards their comments, I will say that *JR1* is very near the top of my list! Thanks for all the help you give here.  : ) chris OCNumberz 05:17, 24 May 2011 (UTC)

Hi JR1,

I'm a big fan. On a number of threads regarding reorganizations you've commented that A c-corp has no tax free way out. I have a client in CA that has reorged into an LLC and checked the box to be taxed as a c-corp. F-type reorg with no change in ownership or assets, simply an entity type change. There are retained earnings and appreciated assets. My question is regarding how to file this? FIscal Year ends 8/31, conversion took place on 12/17. Does the corp have to file an closing return for 9/1-12/17 and the LLC 12/18-8/31 or can it be done on one return? How do the assets transfer?

Thanks Ramyabu

Stock Sale - Sub S

Hi JR1,

Appreciate any feedback.

Stock Sale - Sub S

Hi JR1,

Appreciate any feedback.

Knowledge or speculation?

JR, when you posted "She'll be issuing another article to clarify and correct this one" about Bonnie Lee's article at FoxBusiness, were you sharing something you know is gonna happen, or were you jes' speculatin'? Thanks.

Spell Czech 14:36, 10 July 2011 (UTC)

Oy! So that's the answer...!

"...a book and a talk show. That's how we do it!"

Spell Czech

RE - Scorp-head spinning

Hey JR....looking for some advice.

S-corp bowling alley filed its first return in TY2006....nothing since. I have been retained to file the 07 thru 10 years. In looking over the 2006 return, I see a $180K 39-year property...UGH, I say to myself as I know what is has to be. Ask the client in hopes I am wrong...NOT....it is the purchase of the bowling alley.

After doing some property tax research and talking with the client, he owns the property PERSONALLY. So I think, Hmmm is this a saving grace??

Problem is that there has been no rent paid from the S-corp to the taxpayer, ever, and the S-corp has been paying the mortgage, RE taxes, etc from the s-corp checking account. THere has been no distributions to the shareholder as the bowling alley is barely profitable now, and was not its first few years. No lease agreement exists between the S-corp and taxpayer.

So, I am thinking I amend the 2006 return...any payments for mortgage interest and property taxes paid by the s-corp would be for the benefit of the shareholder (since the bills are in his name), so I book those amounts as rent and add them to Sched E in personal return. Should net a zero with the only extra deduction being depreciation.

Am I missing anything?? I have read so many threads on this and I think I am going about it right, but wanted some confirmation from an expert!

Thanks in advance.

Kbairtax 00:06, 18 July 2011 (UTC)

Tahnks

Jeff...

Thanks for the confirmation....I thought I was the only strange one on this site on a Sunday. Appreciate the super-quick response. Actually took freakin hot to do anything else but work! Sad...

K

Kbairtax 02:17, 18 July 2011 (UTC)

sad life...not really

Too funny. Yes, there is a Mr. Karen.....it's even funnier because he gets called that once in a while. Oh believe me I live. In fact that is why I was working on a sunday nite. I "lived" too many times this past week and it's not like the work goes away. Since it has been so hot, I figured better to get the work done so that when a nice day comes (tomorrow is supposed to be much cooler) then I can goof off again.

Thanks again!! K

Kbairtax 20:10, 18 July 2011 (UTC)

Question for you on 1-year old post

JR1,

I know your memory is iron clad. Back in May 2010, you posted on Discussion:S-Corp_Being_Audited_for_Being_on_a_Cash_Basis that this taxpayer would be OK to use cash basis under $10 million.

I have a similar situation, although not an audit. An S-Corp that sells computer stuff. His gross receipts are approx $3M. I have been using cash basis all along and never thought to switch him to accrual when he crossed the $1M mark.

Please see my post that was added to this thread. If you would be so kind to reply, I would really appreciate it.

Thank you,

--Wiles 19:41, 12 August 2011 (UTC)

Cash Basis Question

Jeff,

I received your response. I agree that every time this question comes up I have to go look it all up again. I think I have mistakenly been comfortable with the idea that as long as you are a C-Corp below $5M and any other entity below $10M, then Cash Basis is OK.

I am having trouble reconciling my comfort zone with what I am now researching. Can you please confirm that if an 1120S with sales of inventory over $1M must switch to Accrual Basis? Thanks.

--Wiles 16:11, 14 August 2011 (UTC)

Zorro

Jeff, Thanks for sharing that link. I like how you (I assume this is you) contrasted the two stories of Jacob. (1) Conniving and self-reliant he stole a blessing vs (2) Helpless being handed a blessing. I never picked up on this contrast the many, many times I heard this story. I thought he was scum for what he did, and I can never figure out what made him "deserve" God's blessing. And that's the point. None of us do. Let me know when you post #3.

--Wiles 03:52, 17 August 2011 (UTC)

The Memorial

I watched Ben's memorial service. I was so moved by your and Jill's strength and words during the service.

I lost a good friend to suicide. It will take some time for things to get better, but it will with your faith and love of God in Jesus' name.

Take care of yourself and your family. God bless you. TomTom O'Connor (Taocpa) 21:18, 2 September 2011 (UTC)

I wish I could help you more.

I've had two different clients lose children to suicide. They tell me that the pain is all but unbearable. I know you are leaning heavily on Christ through this, but please consider also the fact that God gave each of us different talents, and to some, he gave great talent in grief counseling. Please find a professional to talk with. And also encourage your daughter and wife to find someone trained in grief counseling to talk with. You may never understand why things happened the way they did (and even if you did, your understanding will not be perfect understanding), but you've got to get to a point where you can go on and function in spite of your hurts. Please reach out to any of us whom you'd like, but also reach out to a professional. Kevinh5 16:04, 8 September 2011 (UTC)

thinking of you

You and your family are on my mind and in my heart daily. I think that we are all trying to carry you in some seemingly futile way. Is there anything that I or we can do? I pray for peaceful healing for you and your family. Jessica

Hey!

Good to see you posting answers, trying to help others, even as you are still healing. You and your family are in so many of our thoughts on a constant basis......hope you can feel that love & support. Belle 17:24, 12 September 2011 (UTC)

Curious

Hi JR1,

I saw in your profile that you had considered becoming an EA and then changed your mind. Recently I have been thinking of the same thing and starting a small business. I was curious why you decided against it, how long ago that was and how your business progressed since then. Might you be willing to share your thoughts / perhaps mentor? I live in the far SW burbs near I-80 & I-55.

Regards

Curious

Hi JR1,

I saw in your profile that you had considered becoming an EA and then changed your mind. Recently I have been thinking of the same thing and starting a small business. I was curious why you decided against it, how long ago that was and how your business progressed since then. Might you be willing to share your thoughts / perhaps mentor? I live in the far SW burbs near I-80 & I-55.

Regards

A topic you posted to recently has been moved

The emailing clients and client consent discussions that were started in the tax forum yesterday were moved over to they Practice Management forum, since they are practice management topics (as defined in the Discussion Forum Index. You posted in at least one of those, and Michaelstar has recently reminded me that it would be considerate to let people know when discussions are moved.

You can still find it via the "my contributions" link in the upper right corner of your screen.

PS - and it's really nice to see you back posting now and then. My thoughts have been with you.

Trillium 12:21, 2 November 2011 (UTC)


No, I can imagine that it's an ongoing struggle, and I'm so sorry you're having to go through that. Just remember that you can come here to get strength from others when yours temporarily flags. Trillium

Question regarding mission trips

Hi Jeff, I know you are involved in mission trips (per your user page). I was wondering if you could help me out with a question that I got from a member of my church at Discussion:Missionary_Support_Taxable???.

Thank you,

--Wiles 00:48, 3 November 2011 (UTC)

Jeff, Thank you for your replies.

--Wiles 15:59, 3 November 2011 (UTC)

Picture

That is a great picture of your son, and a fitting tribute. Thanks for sharing. I hope you are still feeling all the love & support aimed at your family. Belle 00:44, 4 November 2011 (UTC)

Thank you for posting the pic of your son Ben

JR, Thanks for sharing a little bit about Ben's life with us. My son, Tommy, is 23, also pretty geeky, loves classic rock music, and collected all those same items Ben did. Although we never really know why those who choose to leave this world make that decision, all we can really do is be thankful for the years we did have and treasure the lasting memories of them. I hope as time goes on, this continues to get easier for you and your family. chris OCNumberz 15:37, 7 November 2011 (UTC)

JR1- can you help me unmuddle this s-corp stock repurchase question?

JR1- I hope you don't mind me messaging you directly, but you are clearly the expert, and this scenario is convoluted! I have read what I can on this forum, but nothing addresses this same scenario. I'm hoping you'll have time to respond to me! Thanks a million in advance!

S-corp-- Shareholder A=75%, B=25%. They are bringing in a new shareholder, who will be purchasing 5% of the corp from Shareholder A. They have determined that 5% of the company is worth $50k. So after the purchase ownership will be: A=70%, B=25%, C=5%. It's the way they want to do the sale that is throwing me for a loop: They want to have A sell his 5% back to the corp, and then have C purchase that 5% directly from the corp. (instead of having the transaction take place outside of the corp, between the shareholders directly). BUT, when A sells his shares back to the company, instead of receiving cash, he wants to leave the money in the corp as a shareholder loan (payable)(because he doesn't need the money). Then C gives his money to the corp for A's 5%, BUT C only has enough cash to pay for part of it right now. He is going to pay $20k now, and then carry a loan with the corp for the remaining $30k, which will be paid back through payroll withholdings.

Questions: Is this something they can do? I have never heard of a treasury stock purchase, that is then sold immediately. (this would all happen the same day, from what I understand). I also don't know if C can have a shareholder loan for a percentage purchase of the company? Have you seen it done this way before?

If the answer is yes, this is legit and makes sense, what type of entries need to be made to the corp? At the end of 2012, when C still owes for the shares purchased, does his K-1 still reflect 5% even though he has a loan for it?

Doesn't A still have to record a capital gain on his 1040 regardless of whether he receives the cash or not?

Again, thanks so much. We on this forum are indebted to you for your trustworthy advice!

NatalieR 02:30, 19 December 2011 (UTC)Natalie R.

We on this forum are indebted to you for your trustworthy advice!

I agree with Natalie! When I post a question, you are one of the first people I look to for an answer! :) Somehow I get notified whenever your page changes (I feel like a snoop!), and I was curious about your answer for Natalie....so I 'snooped' her page to get it! Thanks! Merry Christmas, JR!! chris OCNumberz 04:14, 20 December 2011 (UTC)

S-corp follow-up- Thanks!!

Jeff- I don't know how to reply to your response from my page. Is this the only way to do it- to start a new message to you on your page? Thanks so much for your response on that s-corp stock redemption and repurchase by new shareholder! Seems like my clients always have to pick the most convoluted way to do things!

I did a bunch more research cuz I was talking about it with one of my cpa friends, and she said she wasn't sure that Shareholder A could sell back his stock to the s-corp and have new shareholder, C, purchase it without affecting Shareholder B. Her thoughts were that this transaction would have to affect B's ownership percentage as well. The research I did basically said that A's stock redemption would be considered a distribution rather than a sale because A will still own more than 50% of the stock after the redemption. Regarding treasury stock in WA: I did not know that WA doesn't allow for treasury stock on the books! Good to know!!  :) I think this means it would have to affect the R/E account, instead of the Treasury Stock account on the Balance Sheet.

But I'm still confused on why/how B's ownership percentage would be affected? I certainly don't expect you to do the research for me- But I will definitely let you know if I find out whether this truly can be done this way, or if they need to have the transaction take place outside of the corp (like you said you would recommend). I of course, would prefer to do it that way as well. But I just need to be able to explain to them why they can't have it done within the corp (A selling his 5% back to the corp, and C purchasing it from the corp).

Thanks again so much for your quick response! And of course, let me know if you have any additional thoughts on this one...

Merry Christmas to you and your family!!

Natalie

1041 Question(s)

Hey Jeff,

I have a 1041 to do, first and final, on a living trust. Grantor died 3/5/11, so we're doing a fiscal year ending 2/28/12. I've read in the past that you've recommended that the residence get into the trust so that if there's a loss on sale, it can be used. That is the case here. Additionally, there was a secondary home which was rented after his death, and then sold. So I have a Sch. E to capture the rental action, but wonder if the losses on sale are both deductible? We have FMV's of both properties at DOD, they sold for less.

And on the 2nd place, there was a short sale, so there's 1099-C for cancellation of some of the debt. I'm hoping the loss on sale can offset that?

Finally, there was a collection valued at 50k which was finally sold for 10k. Do collections qualify for capital loss treatment?

1: If this was a living trust you need a §645 election to use a fiscal year. Estates can elect a fiscal year, Trusts cannot.

2: The disqualification for loss on decedent's residence is personal use. No difference between estate, trust or hands of beneficiary.

3: Note that even with a §645 election rental is passive. Under Crane inherited basis is the amount of non-recourse debt. Under Tufts non-recourse debt is included in sales proceeds. Most likely gain to the extent of depreciation. Typically property under water is abandoned to avoid all this. Best to review Dave Fogel...♫

Dennis 19:32, 15 February 2012 (UTC)

Dennis invoked your name!

Jeff, I'm not sure what you're asking me in the message you left on my discussion page. There are two discussions on this board where we've talked about the disposition of a decedent's former residence. See Discussion:Loss on Sale of Rental -- Ordinary or LT Cap Loss? and Discussion:Inherited house and loss. Do these answer your questions? DaveFogel 20:40, 16 February 2012 (UTC)

hey

Hello,

I guess attorneys told him this was the correct way to do it. Not really much I can do now unfortunately. He has spent way too much money on this to allow me to come in and tell him it's not correct.

So you are suggesting Work in Progress on the balance sheet and not show an Inventory? Would you recommend cash or accrual?

Thanks for your help!

Daytona

It's a bummer about the rain out. And tomorrow looks bad also :-( Belle 23:08, 26 February 2012 (UTC)

Condolence

Jeff:

My condolence on you loss.

Russ

Vacation property owned by 3 families in an LLC

Hello, I see a topic of conversation that you participated in in 2006 and wonder if you'd be willing to let me know if you've had further experience with this issue.

I have 3 families that purchased a lot to build a vacation home. The home is now being built. The lot (and home) are in an LLC. It is not going to be used as a rental, just a personal "2nd home". The IRS told me they need to see a tax return for an LLC that has a tax id number, but they are not doing any business. No income, only the usual expenses with owning a 2nd home. I believe you suggested that a 1065 would not need to be filed in this situation. Have you still found that to be true? Would each owner then simply take the property taxes and mortgage interest on their own schedule A's?

I am hoping to get some answers in the next day or so, but haven't actually talked to anyone who knows! I finally found this conversation thread this evening and signed up on Tax Almanac. (Google is an amazing invention!)

Would love any input you're able to share!!

Thanks so much

Kelly Haverkate Dayton Oregon kellyjhaverkate@gmail.com 503 864-2226

Hi JR, thank you for your message. Yes I know it is not the CPA that will make a tax pro, but I have noticed clients make it a big deal when you do not have it. I guess they see it as proof you know what you are doing. Also, and I don't want to sound like I am finding excuses, but I think my clients don't think I know the tax field as a woman. Sadly, when I started the business by myself getting new clients was exhausting, once I got a male partner, eventhough he works another job and does not do any work at the office, clients are more comfortable working with us.

Now with this new IRS testing, I am going to either have to become an EA, go for CPA, or take the IRS exam. As if any of these exams will make us better at what we do. I know I still have a long way to go to be considered an experienced tax pro.

Also, I read your profile and I am sorry about your son. He is in a much better place. As a mother of 3 I can only imagine the pain of losing a child. God Bless you.

By the way, I am a fellow Chicagoan as well.

Hi JR,

I'm looking for some support.

My client's LLC has been filed as Sch C. in past years but due do huge increase in income (and tax) we are electing S-corp status (late filed 2553) with reasonable compensation to shareholder. Since I'm the last person in the loop (of course), I never had the opportunity to get LLC set up with timely filed 941s.

My questions below are based on several comments by you and a few others in prior years.

Would you still advise that I give shareholder his compensation via a 1099 flowing to 1040 as a stopgap for 2011? I would properly file 941s etc. for 2012.

If so, do you put that amount on officer compensation of 1120-S? I'm not sure if IRS matches that amount to W-2 and/or 941.

Since the gross income has been 1099'd under his SSN this whole time, I would be using a Schedule C with a nominee adjustment to 1120-S (hopefully avoiding a CP-2000). Would having a 2nd "Sch. C" for his officers compensation look odd to IRS.

If we go this route, what potential pitfalls should I notify him about (i.e. SUTA, FUTA)?

Thanks for your time...

Louis Tyson "Shoebox"````

New S-Corp from Sch C.

Thanks for the support! Client will save $15,000 with a very reasonable compnesation. Take care...

NY-NJ

I am assuming the person will be a NJ resident, in which case she can take a credit for the tax paid NY on the same income, but it can be trickier:

1. Certain Section 125 plans are taxed by NJ 2. Ditto 403(b) plans but not 401K.

Next point is to eliminate days not worked in NY (but not at home unless that is a condition of employment) when computing the NY tax....at high incomes, the rates are not that dissimiliar at present.

Here is one easy example of someone whose entire income is earned in NY: she earned 150K, puts 10K into a 401K, but also has 5K in a 125 plan (and not included in the 150K). She pays NY on 140K; NJ on 145K.

The one real complication would be if she were a FL resident; if she filed a NR-NJ return there is no credit for other state taxes, but as you state it, it sounds like she is a NJ resident.....but this would mean tax on investments too.

Death&Taxes 17:55, 21 May 2012 (UTC)

Hi JR

Hi, I am Jenny. I would like to use your service as an accountant. I cannot find your firm or name to look up your account business. Can you send me contact info so I may call and talk to you? Thanks

Am I understanding this correctly? So if the owner paid the taxes on the ordinary business income for the year 2011. Whenever the owner takes out that remaining money then it's no longer taxed; even if it's in 2015?

Another question, what advantage does the owner of the company have in paying ordinary business income? Seems so much better if they just paid themselves a fair salary and pay the rest through distributions since there would be less taxes. There's a lot of s-corp that come for free taxes where I volunteer. Why would they elect to have ordinary business income over distributions? They already paid themselves a fair wage. I'm so lost with the idea.

Thanks

thanks for clarifying s-corp stuff. you've enlightened me.

I saw your post on getting property out of a C corp and have a case where the Majority stockholder did in fact die (intestate). There was however a minority stockholder (10%) who was supposed to take control of the company but buy/sells etc were never executed. Now the 90% is in the Estate. The primary asset is the Real Estate, but I am unclear on how the other stockholder impacts this transaction. Can the minority stockholder sell their 10% to the Estate? Or can the corporation still be liquidated and only the 10% stockholder has the tax liability?

Any help would be appreciated.

Thinking of you and your family today.

My prayers go out for your comfort. Sincerely, Kevinh5 17:27, 22 January 2013 (UTC)

MN

JR1,

...and don't forget, that MN tax withheld on the non-resident shareholder should also be a 1040 itemized deduction in the year paid (assuming the corp didn't deduct it, which the corp probably shouldn't). In addition, the taxpayer should get a tax credit in her home/resident state for taxes paid to MN.

Ckenefick 04:58, 31 January 2013 (UTC)ckenefick

Jeff: Ever since I started using Tax Almanac to help me with my research, you have been absolutely invaluable to me. I just wanted to express my gratitude. I just read your Bio and saw that you know the Way, the Truth and the Life. Ben is waiting for you you know. Just as my brother Billy is waiting for me. Thank you for sharing your expertise in this forum. I am sure you regularly get messages of praise and thanks-I just wanted to make sure I sent one as well. Very best regards, Jim Armstrong

Hi JR1. What do you think about the propriety of reimbursing a >2% scorp shareholder for the annual depreciation on kennel facilities located on the property (same property as homestead). Do you think the IRS would call it rent? There is a definite business connection because the outbuildings are used in a profitable boarding and breeding business. The $ amount would be determined based on the appraisal value of the outbuildings.

I can't find this specific problem discussed anywhere else, and can't find any legal precedent that's close enough.

Thanks

Alison

Charging S Corp interest on Shareholder loan

I have a client whose S Corp business hasn't been making money so he has lines of credits that were personally backed. So now he is paying off the loans with personal wages and incurring interest expense. He has a new business opportunity that he is going to try so he doesn't want to dissolve the business.

Since this is my first S Corp client I am not sure what the best way to handle this. He is contributing from his personal funds so he already paid income taxes on the wages from his employeer and when the business starts to make money again he would like to avoid paying taxes on getting repaid.

Should he be charging interest, could that be accrued (since the business doesn't have any income right now)? I looked on the IRS website for the rates and it looks like it is around 3.5% for long term loans, would that be enough interest to show the arms length transaction? Also in the future when the business is making money how can the shareholder get the principal paid back without being taxed on that money?

Any advice would be greatly appreciated.

If you can stand it....

I could use some support here if you are up to it

http://www.taxalmanac.org/index.php/Discussion:Sodomite_Rainbow_House_Across_from_Church

cursor down to the bottom.

JAD 02:48, 23 March 2013 (UTC)

Crow and Jesus

I did not know that those were all his alter-ego. I will stay out of chat from now on also, following your lead. Thanks, Jessica

You're welcome

NC passed a very strange tax law during a recession: For 2012 and 2013, each taxpayer (husband AND wife) may 'exempt' up to 50,000 in profit from an actively managed business (not S Corp salary, just K-1 business profit). This applies to Sch C, 1065 and 1120-S. Very strange to give people a tax break in a year the state needs the revenue. But it's true. Good luck with the 20 states! Kevinh5 14:39, 1 April 2013 (UTC)

I didn't plan well on my own, and took more salary, which was taxable. Had I shown more K-1 profit, I would have benefitted more. Oh well.

JR1 - not sure if you have bookmarked my post but please take a look at my last two posts on the subject: 1099-misc not issued providing tax benefit

Your abrupt, terse, response concerns me in that perhaps I am missing something else besides the typo that I have written about in my last post on the subject.

Todd

Kevin

JR1 - just read your response to Kevin about him disparaging Jane from Ct. and I thank you for your comment. I stopped using this forum because I got burned by him several times and I resent it. I'm a sole practitioner and this forum used to be very helpful to me. Now I go elsewhere. There are plenty of good and qualified users of this forum and Kevin is not indispensable. I think he should be censured at the least because he is intimidating and his sarcasm is contrary to what this forum is about. Your response was right on. Paul BrushPBinNJ 08:52, 24 April 2013 (UTC)

Greetings Mr. JR1 In the past during this time of year you have been helpful. I misplaced your personal email, so I figured I would meet you here. I have a question, please see below. Hope you and family are well. Thanks for your time in advance.

I pretty much have the answer, but after the client decided to hire a Forensic Financial Rep, I thought I should make sure I know more then she? Client/Spouse Distributed $155,000 from a Trad. IRA which belonged to her living husband,(a taxable event) of course. I belive she wanted to have ALL assets out of his name for whatever reason. Well this FF Rep, has informed my client not to file and/or pay tax because she wanted to see if she could request a rollback (event is past the 60 day rollover period) which has actually been more like 6 months. She took the funds and placed in a Trust Account with Clt/Spouse being the Benefic. of the Trust which was placed in an IRA for her. The FF Rep. stated that she is hoping she can have the brokerage who did use Code 7 on Form 1099R to IRS. Is there anyway the the FF Rep can benefit my client. And yes, the FF Rep does prepare taxes and is a MBA Grad. I believe I heard her say that my retired clt will be a (ginny-pig) of sorts to change the rules of elderly who get caught up in this type of transaction. Please confirm my thoughts that she took the money, now she has to pay a $25K tax bill. Or am I wrong?

Thank you!1 Thank You Mr. Jeff. I appreciate your quick feedback. Checking the Tax Question page, people are viewing but not commenting. Boo Hoo. Glad to hear that you are helping those behind the prison walls. You give them something to look forward to for sure. Bless you for Gods work.

Thanks for your answer because I informed my client to pay the tax, and if the FF can make a difference then so be it. Just hate to see them get Penalties and Interest while this person tries to beat the system. The client does have medical problems but is up and walking around just like us. Husband is on the verge of Dementia, but still vital. They were going to try for the medical reason, but still not good enough and only good for EWP. I think she is trying to get Medicare and this is why she took out of his name so he can qualify. These people (not poor) mind you, wonder why our system is broken??? Thanks for your time and many talents. Bless ya!

LLC conversion to an S-Corp and Unequal LLC 704(b) Capital Accounts but want Equal sharing

Hi JR1


I've went through thousands of posts and cannot find my answers. I work in finance and have a small company with some family members outside of that arena and thinking of converting our LLC to an S-Corp, but am stumped on how we continue to share income equally with different 704(b) capital accounts. Do we equalize the capital accounts before converting to S-Corp? I have a few questions along those lines which i can elaborate on. I'm interested in speaking with you and retaining your services. If you have the time, please reach out to me at dariushou@hotmail.com.

Thanks, Darius

My two cents

JR1, I ran across something on JAD's discussion page and I wanted to write her something and I thought it only fair I copy you with it.

Here it is:

I can easily understand why JR1 says I'm a hater, so I don't blame him for saying that in any way. In fact, he's justified in saying it. I can see his side of it.

If there is any thing I do hate...and there's not much....it is people who don't have the slightest idea what picking up the Cross and following Christ actually means.

There is way too much focus on "salvation" in the Church today, and it is to the point where it gets so cheapened that it's seen as a "thing" or an "insurance policy". Just a mere ticket to heaven.

There are many, many ways that people can rationalize and deceive themselves in today's world, and one of those ways is to fall into worship of the Golden Calf, and God knows that is what America actually worships today, and they clothe it in shallow religiousity.

And in my opinion, they use religion to justify opinions on culture that are really their own, but they try to cloak them in Bible langauge.

So I mean to be as extreme and irreverant as I possibly can be to get people to think. When Jesus said what he did at Luke 4:17-21, I think he meant every word of it. Jesus was no suit wearing member of the local Chamber of Commerce, to put it mildly.

Yes I am a liberal. And if you read what I write, it is certainly not PC. What I really believe is this short statement by the philosopher (yes philosopher) Jacques Derrida. If people care to, they can listen to it as many times as they want because some of the points are subtle. I don't like to think of myself as a milk drinker when it comes to religion. I'm not a baby. I eat hardier food.

http://www.youtube.com/watch?v=r3fScS2cnB0

To JR1, only: JR, I want people to doubt. I want people to question their faith every single day to make sure it's not just a thing, or a cheap refuge. I don't want people to be fat and happy in their faith: you can't be fat and happy if you are carrying the Cross. I say the same thing about myself that Derrida said in the youtube video: I rightly pass as an athiest, but the point is subtle. By the way, I've posted this youtube video more than one time on TA to tell people what I really think, but I don't think anyone listens to it, which is their right, of course.

I want to shake people up. I want to cause them distress. I want to do anyting possible to break through the shallowness that predominates in American churches today. And I am particularly upset at so called ministers who have made a pact with the Golden Calf today that is disgusting. And if I was really on the side of the "evil one", trust me, I would be in Rick Warren's church or Joel Osteen's church acting like the biggest Christian on earth, and knowing deep down inside that my faith was shallow to the core; and I would encourage other people to be happy, to rationalize their personal faults by finding a passage in scripture to hang their sorry hat on, and to adopt the same shallow faith I had. That type of person is really doing the work of the "evil one".

Take a look at the verses from Luke above. I'm sure you are familiar with them. Jesus was an outright radical. He would be unwelcome in 95% of the churches in America today. He was a radical, and I approve of it. Jesus attacked the Temple priests, and flaunted every rule of the church because it was a church gone bad, and I don't mind doing likewise today.

The dangerous sin today is certainly not the sex sins. Those are easy to spot. If God understands anything it is lust, because lust comes so easily to mankind. The deep sin today is the excuses Christians make for their sorry behavior toward their fellow man, and how they use what I call "The Church Bandaid" to hide themselves from their much, much, much deeper faults and blindspots.

Sorry this went on longer than 2 cents, but I'm bad about that.  :)


CrowJD 04:20, 14 September 2013 (UTC)

Thank you

One thing you don't have to even worry about is being unkind to me. You have to have intent to be really unkind...in a mean way. And you never intended to be truly unkind to me at all. I think part of my outlook just comes from my experiences as a lawyer, where we tear each other to pieces in court, but can go out and have a beer afterward and actually be good friends in "real life".

If you have a chance, you might want to listen to this lecture by Prof. Kaufmann on the subject of Kierkegaard. Keep in mind, one of my majors in college (for good or bad) was philosophy.  :) As far as I'm concerned, Kierkegaard was the last great religious thinker. At first I thought it made sense to listen to part 2 of this lecture before part 1, however, now that I think about it, I think it's better to listen to it in the order it was given. Well, religion is a huge topic and everyone has a slightly different way of tending the vineyard.

http://archive.org/details/KierkegaardAndTheCrisisInReligion

Here is a free college course on Kierkegaard (there are not grades or any real tests or anything like that). Unfortunately, it has already started, but if you are interested, I am pretty sure it will be given again. I have not taken this free course, but I might one day. I am already quite familiar with Kierkegaard already from my college years.https://www.coursera.org/course/kierkegaard

(What am i thinking, the course starts on oct 7, so it has not started yet).

My only point in mentioning this philosopher and religious thinker is NOT because I think someone should "follow" a philosopher, but because they offer interesting food for thought.

Surcharge or Surtax on Natalie's Obamacare question

JR, what surtax are you thinking about when you commented about it? If the rules are followed and insurance is placed that meets the minimum requirements, there wouldn't be a worry would there? That's the way I'm seeing it. Additionally, if the client follows the well established rules for Hawaii's health insurance requirements, I don't see that there is something to worry about. Am I reading something wrong? Actionbsns 00:17, 29 October 2013 (UTC)

I have a question for you

Jeff, I've been considering a move away from everyday income tax work & starting up a part-time business doing tax resolution. I've done a lot of work in that area, several OICs, audits, etc. I plan to contact local accountants, probably conduct workshops, that kind of thing. I would like to hear your thoughts regarding such a venture. My motivation is to spend more time attending to my disabled wife, and I'm hoping that one or two days a week will be viable. I've started my business plan, and I need to identify the market. I'm hoping you can help me. Thanks. Marcilio

Jim Hill 847-890-5786

I have a question for you

Jeff, I've been considering a move away from everyday income tax work & starting up a part-time business doing tax resolution. I've done a lot of work in that area, several OICs, audits, etc. I plan to contact local accountants, probably conduct workshops, that kind of thing. I would like to hear your thoughts regarding such a venture. My motivation is to spend more time attending to my disabled wife, and I'm hoping that one or two days a week will be viable. I've started my business plan, and I need to identify the market. I'm hoping you can help me. Thanks. Marcilio

Jim Hill 847-890-5786

JKHILL1193@GMAIL.COM

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