Discussion:Insolvant S-Corp -- dissolve or keep for 10 years for possible tax benefit?

The S-Corp then tanked quite hard, and is largely not operating at this point. It has about $2,000 in assets to its $300,000 in liabilities.

I was going to dissolve the S-Corp within the next few months. I was always a material participant, so there is no issue of passive income or losses.

I have a cumulative amount of disallowed/suspended losses on my 2003-2007 Form 6198's, of about an amount of $275,000. These losses were disallowed/suspended due to zero adjusted basis and no contributions.

Under advice from an IRS Individual Complex Tax Law Department representative, I thought when I dissolved the S-Corp, those losses would become current/unsuspended, create a huge loss on my Schedule E, creating a huge net operating loss which would carry forward for up to 20 years to offset future earned income.

In the thread Discussion:Where are unsuspended 6198 losses declared, when stock interest is terminated?, Dennis indicated that the IRS agent was incorrect, and that without somehow restoring basis, the disallowed/suspended losses just went away.

I am filing personal Chapter 7 bankruptcy to discharge the S-Corp debt that I personally guaranteed.

That background leads me to my question...

Should I dissolve the S-Corp?

Or, should I leave it open and completely unoperating? What if I do this, and wait for the statute of limitations to run out on all the S-Corp debts (about 10 years because of judgments?) Would I then be able to have the S-Corp earn income up to the disallowed/suspended loss amount without paying income tax on the pass-through income? If this works, retained profits and distributions I might make in the future might not be income taxed.

Of the $300,000 in liabilities of the S-Corp, about $50,000 of that is from tax liabilities including penalty and interest. Maybe keeping the S-Corp open would be more trouble with taxing authorities than it's worth.

There may be an issue of cancellation of debt income. If none of the creditors issue a 1099-C, and the statute of limitations runs out, does that need to be reported as cancellation of debt income, even if the creditors never indicate to him that the debt is considered cancelled?

I wasn't sure you were coming back. Now that you have. Here you go:

I looked at the bankruptcy forum. I saw your posts there. I really don't know what to believe about your situation or your profile on this forum. It's a real whopper of a story that's for sure. The reason:

Seems you like online poker. You mention it in your posts on the bankruptcy forum. You even acknowledged that your wife won $50K on a hand and you were hoping to keep that money out of the bankruptcy. I guess the royal flush pays nicely in that situation. So you were hoping after taxes to give that money to your dad through your wife. You changed all your online poker accounts to your wife, according to what I read.

You also hoped to avoid the trust fund penalties on the employer payroll taxes. You were looking for a way out of that. You were also hoping to avoid paying your bankruptcy attorney by having it discharged in bankruptcy.

Now some advice that's practical, honest and truthful: Take that online poker money you won and put some of it towards some of it towards professional tax advice and your bankruptcy lawyer. You are in over your head like with your S Corp. Get a professional and get out of here. Now.

Tom

Tom

Darlingm - PLEASE DON'T BRING ANOTHER CHILD INTO THE WORLD!! We have enough already that are being "grown" (notice I didn't say "raised") by parents with "issues". Quit gambling and get smart enough to not get snookered by an "international credit card fraud ring". Get a job and put your efforts into that instead of trying to figure out how to get rich quick or cheat your bankruptcy attorney out of what he has earned. (Trust me - he's smart enough not to get shorted by you.)