Discussion:At Risk Rules
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Revision as of 01:02, 1 October 2009 Ss-cpa (Talk | contribs) (I think we all a) Next diff → |
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| {{ForumReplyPost|UserID=Death&Taxes|Date=1 October 2009|Text=Of course officer loans provide basis, but they must be at risk because for years we have been taught that one way to deduct loss from a S was to lend it money. If that money were not at risk, this would not work.}} | {{ForumReplyPost|UserID=Death&Taxes|Date=1 October 2009|Text=Of course officer loans provide basis, but they must be at risk because for years we have been taught that one way to deduct loss from a S was to lend it money. If that money were not at risk, this would not work.}} | ||
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| + | {{ForumReplyPost|UserID=Ss-cpa|Date=1 October 2009|Text=I think we all agree. Thanks to each of you!}} | ||
Revision as of 01:02, 1 October 2009
Discussion Forum Index --> Advanced Tax Questions --> At Risk Rules
Discussion Forum Index --> Tax Questions --> At Risk Rules
| 30 September 2009 | |
| As I understand, if a 100% shareholder loans his personal monies to his S Corporation, then that will give him basis for deducting losses. I was told by the IRS that under the At Risk Rules, he would not be at risk for these monies. She said that the At Risk Rules do not allow the consideration of the shareholder loans to the corporation. Is that correct? | |
| 30 September 2009 | |
| the three rings you have to jump through in the S corp circus are the Basis, Passive, and At-Risk tests.
He is certainly at risk for the monies he loaned the company because he stands to lose them.
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| 30 September 2009 | |
| I was just trying to get an answer to a question. I understood the rules as you stated, but the IRS representative said otherwise. My issue is that the returns were prepared by the former CPA with the losses limited by the At Risk Rules. I believe this is in error; that the losses should have been allowed, and would have resulted in NOL's for the individual taxpayer (i.e. 100% shareholder). My follow-up question is how do you correct this if the error goes back to years that are beyond the statute of limitations? Is this a change in accounting method where I would use Form 3115? Either way, he is not going to owe any taxes and he would actually be better off with the At Risk Rules (i.e on Form 6198) carrying the losses forward, but I don't think I should leave this as is. Do you agree? | |
| 30 September 2009 | |
| Well, I hate NOT to be consistent. But maybe you could re-visit the at-risk calculation for the open years and assume that the calculation was correct for the closed years. Or maybe you're better off to just start now with the correct treatment going forward. I'd advise the client of the error, and the possible outcome from the various scenereos, and let him choose. Worse case is if you amend the open years and the IRS comes back and says you have to re-calculate at-risk for the closed years so you lose a bunch. | |
Death&Taxes (talk|edits) said: | 30 September 2009 |
| And for once, maybe the IRS instructions are pretty good.
http://www.irs.gov/instructions/i6198/ch02.html Forgive one stupid question, but is the shareholder really liable to repay himself. You are at risk if you are held liable for a debt of the corporation, so I suppose you will be held to payoff your loan to yourself, but..... It is a slight difference between partnerships and S Corps. In the former, contributions are usually considered additional capital. | |
| 30 September 2009 | |
| Death&Taxes or anyone...
Section 465(a)(1) applies to either an individual or a C Corporation, but does not mention an S Corporation or Partnership. 465(b)(1) goes on to say that "a taxpayer shall be considered at risk for an activity with respect to amounts including--(A) the amount of money and the adjusted basis of other property contributed by the taxpayer to the activity, and (B) amounts borrowed with respect to such activity (as determined under paragraph (2))." I am not sure, but I don't think that the S Corporation borrowing monies from the 100% shareholder falls under (B)above, yet rather (A) as money contributed, even though it is technically a loan. I think (B) only applies if the loan is from someone other than the individual. In this example, the individual is the 100% S Corporation shareholder. Let's say for our example, the S Corporation is a single activity with recurring losses year after year. 465 will apply to the individual only. (B) will not apply as the individual did not borrow anything. The individual loaned personal monies to the S Corporation - a different situation than what (B) is talking about. That is why I want to consider the individual's loaning funds to the S Corporation as falling under (A). And if I am correct that only (A) applies, then it would not matter if the loan agreement required the shareholder to pay the loan to himself, because the loan from the shareholder to the S Corporation is not the loan that (B) is referring to. Does that make sense, anyone? | |
| 30 September 2009 | |
| Loans from shareholder increase at-risk because they increase basis, in my humble opinion. Use up the loan basis with losses, and you have a basis limitation, not an at-risk limitation, again, in my humble opinion. | |
Death&Taxes (talk|edits) said: | 1 October 2009 |
| Of course officer loans provide basis, but they must be at risk because for years we have been taught that one way to deduct loss from a S was to lend it money. If that money were not at risk, this would not work. | |
