Corporation bought a jeep for the owners daughter...

[schirallicpa]

in 2011 the daughter received from the corporation a jeep.  however, the corporation did not tell us the jeep was a gift for the daughter, and let us put the jeep on the corp books and take depreciation.  

in 2017 the jeep was in an accident.  I am informed via sticky note.  "We no longer have the 2011 Jeep."  Ok - so I ask the usual questions - was it traded, sold, wrecked, etc.  I am informed that the daughter always held it personally, and used it for business,  and that it was titled and registered in her name and that she had always paid the insurance.  So in April 2017 when it was totaled, the daughter received the insurance and bought herself another car.

Ugh.

So wrestling with how to treat this.  Was the shareholder dad supposed to file a gift tax return for this back in 2011?  (I think so)  But do I back peddle and do that now?  But then I have to deal with the depr that the corp has taken over the past 6 years.  Maybe the proceeds are shown as income now on 4797, and I ......this is draining my brain......and yes, yes, then income would be essentially the amount of depreciation taken over the years.  This would make me feel better.

But the insurance check went directly to her and the books show no record of the insurance money.

Why?  why do people do this to me......

whine whine whine.  This is my first return for the year too.

 

 

[Abby Normal]

This is why you should ask for a copy of the title and invoice on all vehicle purchases. AND get business/personal mileage on all vehicles every year.

To make it right, you need to amend 2011-2016 to remove the vehicle and all related expenses from the corporation. They lied to to you and need to pay for their sins... plus tax and penalties.

[jklcpa]

Adding to Abby Normal's solution above, in addition to removing the vehicle and related expenses from the corporation, you will also have to account for the corporate assets (funds) that were disbursed in 2011 to purchase the personal vehicle.  Hopefully there wasn't a former corp vehicle used as a trade-in that would complicate this further.  At this point, I'd say that any corp assets used to fund the purchase of that now-wrecked Jeep would be a 2011 dividend distribution to the shareholder-dad that opens that can of worms for the parent's personal return too.  I don't think you'd be able to justify calling it anything else, such as a stockholder loan, because that wasn't the intent, and then you'd also have the interest charges to factor into it.

[Evan S. Golar]

Then wouldn't the dividend distribution to the father, in order to clean it out of the corporation, then require the father to gift tax return the vehicle in year transferred?

But I'm also confused with the original post stating  " the daughter always held it personally, and used it for business" and she paid the insurance on it.

[Lee B]

As far the depreciation goes, I would file a 3115 to remove the depreciation expense and any related expenses from the from the corporation. instead of amending all of those years. As far as the purchase price of the jeep, I would record it as a stockholder receivable, then clear that out with a 2017 dividend. This would resolve most of the issues with the least amount of work.

[Margaret CPA in OH]

"Most" of the issues may be resolved, true, but were any expenses (only insurance was mentioned) charged to the corp?  What about the licensing and plates renewals?  Maintenance such as gas?  What is meant by the daughter using it 'in business?'  Whose business?  And there is still the gift return issue, I should think. 

I've had ugly situations before but this one is particularly, um, interesting!

[SaraEA]

You can file the gift tax return now with no penalty unless the client has actually given away more than the exclusion amount.  It's a good idea to get it over with.  Form 706 requires reporting for prior  gifts for which no 709 was filed.  I know, few will ever need a 706, but sometimes it is filed just to elect portability or because the state has a lower threshhold and wants one.

[BLACK BART]

On ‎1‎/‎16‎/‎2018 at 3:13 PM, schirallicpa said:

Either do this:

"...deal with the depr that the corp has taken over the past 6 years.  Maybe the proceeds are shown as income now on 4797, and...then income would be essentially the amount of depreciation taken over the years.  This would make me feel better..."

or this:

On ‎1‎/‎16‎/‎2018 at 5:50 PM, cbslee said:

As far the depreciation goes, I would file a 3115 to remove the depreciation expense and any related expenses from the from the corporation. instead of amending all of those years. As far as the purchase price of the jeep, I would record it as a stockholder receivable, then clear that out with a 2017 dividend. This would resolve most of the issues with the least amount of work.

Good grief!  Talk about tying yourself in knots over not much of nothing - small corps do this kind of stuff all the time.  And a 2011 gift tax return - can you imagine IRS is interested?  The money difference in licenses, insurance, and operating expenses isn't significant - maybe she did actually drive to the parts store for pop during the six years; who can say? Anyhow, bury the body and move on without adding an ulcer and subtracting a client. 

 

 

 

 

[Medlin Software, Dennis]

11 hours ago, BLACK BART said:

Good grief!  Talk about tying yourself in knots over not much of nothing - small corps do this kind of stuff all the time.  And a 2011 gift tax return - can you imagine IRS is interested?  The money difference in licenses, insurance, and operating expenses isn't significant - maybe she did actually drive to the parts store for pop during the six years; who can say? Anyhow, bury the body and move on without adding an ulcer and subtracting a client. 

 

That is the real skill in what you do, and in part, what I do.  Giving advice which does not make you worry, handling customer mistakes without risking your reputation, and all the while keeping the income flowing.  Personally, I have a tough time dealing with people who do something wrong, and they usually know is wrong, but then again, I am not signing any returns, so I try to point out the mistake, then 'let it go".  For instance, the owner/employee who waits until January, to see how they can pay less tax, and back dates themselves one paycheck for December.  Their "I always do it this way" argument is never one I can win, so I point out what they are doing is not correct, to seek professional advice, and "let it go".  Those types of folks will not change unless caught, and since I am not the "catcher", that is all I can do, since it is not my worry.  I do save those emails, just in case they try to put me in the collection chain.

[Abby Normal]

The preparer is the one who made the mistake by not asking for the registration and invoice before adding the asset. Also, what was put down for mileage on the 4562 each year? Was personal use of vehicle calculated and added to W2s? I don't blame the customer, here.