Discussion:Corporate NOL
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| Revision as of 16:11, 5 November 2008 Tman (Talk | contribs) (Personal shareholder laons to c corp; tax issues) ← Previous diff |
Revision as of 18:39, 5 November 2008 BEGooding (Talk | contribs) (TMAN: I expect) Next diff → |
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| All creative ideas and feedback are welcomed. Many thanks in advance for your responses! | All creative ideas and feedback are welcomed. Many thanks in advance for your responses! | ||
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| + | {{ForumReplyPost|UserID=BEGooding|Date=November 5, 2008|Text=TMAN: I expect there are two significant issues here. First, as relates to bankruptcies, I believe there is a rule that says, to the extent you have debt forgiven in bankrupcy, you must reduce the "tax basis" in items that would provide a tax benefit to you. So, for example, if you have $120k of debt forgiven, then you would have to reduce your tax basis in items that would result in a write off i.e. including bad debt write offs. | ||
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| + | The second issue relates to treatment of bad debt write offs. Even though the shareholder loaned money to his wholly owned corporation, if uncollectible, the debt may be considered a non-business bad debt and capital loss and have to be written off as a short-term capital loss subject to the $3k/year maximum net write-off.}} | ||
Revision as of 18:39, 5 November 2008
Discussion Forum Index --> Advanced Tax Questions --> Corporate NOL
Discussion Forum Index --> Tax Questions --> Corporate NOL
| December 15, 2007 | |
| Hello. Retail shop (my C Corp client) with significant NOL sells all assets to third party. Assets include inventory, equipment, and balance of goodwill left from when my client acquired the shop. In addition, the third party pays an amount directly to the 100% owner of C Corp for non-compete agreement. Proceeds to Corp are used to pay off liabilities. After clearing the balance sheet of assets and liabilities, there remains an NOL of ~100k and documented loan due to shareholder of ~$100k.
Can my client leave her C Corp open and have the company provide consulting services to enable her to eat up the Corp NOL and get paid back the amount due her? | |
Death&Taxes (talk|edits) said: | 15 December 2007 |
| To me, I can't see any reason why not. | |
| 5 November 2008 | |
| Greetings,
I am dealing with someone that started a corporation a few years ago. The corporation has lost money all years but one, and owes the shareholder about $120,000. Unfortunately this was not setup as an S corp, but is a regular corporation. This person is also the president of the company. The individual sole shareholder will be declaring personal bankruptcy. Much of the reason for this is due to the large amount of personal debt (through credit cards, loans, loans from family members) used to loan to the corporation to hopefully increase profits. It has been advised by a bankruptcy attorney to not only declare personal bankruptcy, but also have the corporation declare bankruptcy (because of some guarantees and possible perceived liabilities from the corporation’s customers – when people sue a company they usually sue the officers also, etc). So the question is: If the corporation also declares bankruptcy, and the shareholder is wiped out as a creditor, would the shareholder (mentioned above and also has filed personal bankruptcy) be able to take a personal loss on his tax return for the $120,000 he loaned the company? (Of course if this corporation was an S corp this wouldn’t even be an issue, the losses would just flow through on the personal return.) What we are trying to accomplish is the same net effect – or as close to it as possible – as if the corporation was an S corp, or pretty close to it. Would it be feasible to start or have an S corp perform services for the corporation, then the corporation mentioned above files bankruptcy, wiping out the money owed to the S corp, thus creating a loss flowing through on the personal tax return that way? All creative ideas and feedback are welcomed. Many thanks in advance for your responses! | |
| November 5, 2008 | |
| TMAN: I expect there are two significant issues here. First, as relates to bankruptcies, I believe there is a rule that says, to the extent you have debt forgiven in bankrupcy, you must reduce the "tax basis" in items that would provide a tax benefit to you. So, for example, if you have $120k of debt forgiven, then you would have to reduce your tax basis in items that would result in a write off i.e. including bad debt write offs.
The second issue relates to treatment of bad debt write offs. Even though the shareholder loaned money to his wholly owned corporation, if uncollectible, the debt may be considered a non-business bad debt and capital loss and have to be written off as a short-term capital loss subject to the $3k/year maximum net write-off. | |
