SunTaxMan

On another tax board, in response to this discussion, the thought has been expressed that this could be, "collateral on the guarantee, rather than on the loan." Why would/could this be significant to me? Could it affect shareholder basis in the S-Corp? Anyone have any insight? Thanks.

Much thanks, And to think that I have been under the impression, at least for the last year or so, that nothing good could EVER come from Arkansas! I am proven wrong again!

KC, To clarify..... You said, "I disagree with your statement that they have no basis. The person who borrowed the money on his house, [or their house if this is a couple, a detail that is not clear] and then put that money into the business has basis in the business equal to the funds invested. The SCorp did not own the home, so it could not borrow money on it. So clearly, the owner of the house borrowed the money, even if they immediately put it into the business. " The "loan" is a Commercial Loan, with the business name as the borrower, with the business FEIN as the identifier on the loan. No 1098 is issued. The collateral for the loan is the residence/real estate of these two shareholders (by the way, two separately owned residences, not that it matters). A thread sometime ago led to the conclusion that because of these facts, the loan did not establish basis, i.e., the shareholders did not borrow the money, the business did. Proceeds of the loan were never paid to the shareholders, but to the business. Shareholders did not write any checks payable to the business for loan proceeds - the bank wrote the loan proceeds payable to the business - the simple use of the residence/real estate as collateral does not establish basis. I conclude this "small town bank" did not handle this loan in the best interests of these taxpayers, BUT, (1) it is DONE and (2) they didn't ask me before consumating the loan process. Is this incorrect? You also said, "Also, the K-1 always sends the loss to the stockholders, where it is determined whether THEY have basis to deduct it now, or have to carry it over. The S Corp does not necessarily know whether it can be used now or not, but that does not affect anything on the Corp books. It's still passed through, each year. You have to properly enter the info into the 1040 to let the software know whether to take the loss now or carry it over." I have reviewed the 1040, Schedule E, and the K-1 (1120S) Input Worksheet (in the 1040 file) in my ATX - and I can find no reference to, nor dealing with, shareholder basis. So, I assume if the K-1 from the 1120S shows a loss on line 1, it would naturally carry to Schedule E as a loss, and therefore page 1 of the 1040. I have reviewed the 1120S, and the K-1 input sheet in the 1120S file. Shareholder basis IS dealt with in the 1120S in ATX. And: 1. In the 1120S form and worksheets, I find nothing about shareholder basis. 2. In the 1120s, K-1, I find the loss entered (as a negative figure) on Line 1, Ordinary Income or Loss. HOWEVER, on the "Shareholder's Basis Statement," worksheet as part of the 1120S, K-1 (IN the 1040 program - there is NO such "Shareholder's Basis Statement" or related worksheet - perhaps there should be), I find zeros on every line dealing with "Stock Basis," "Loan Balance," "Loan Basis," and "Total Basis." On the line for "Loss Carryovers," Line 1, "Loss items carried over to next year" is the identical loss amount from line one of the K-1 --- I interpret this to mean the S-Corp does know the loss is not currently deductible because of shareholder basis limitation. This "Shareholder's Basis Statement" is clearly marked, "Note to Shareholder - keep for your records." Down further on this "Shareholder's Basis Statement" is a section titled, "Part VIII - Loss and Expense Items," where "Ordinary loss from trade or business activities" carries the same loss amount (as a positive figure). My dilemma - IF the loss on the K-1, line 1 is NOT deductible this year, BECAUSE of no basis (which is correct. Correct?) then the negative amount on line 1 of the K-1 is inappropriate. The presence of the "loss carryover" on the "Shareholder's Basis Statement" SHOULD prevent the loss amount from appearing on line one of the K-1. If I enter the K-1 loss on the 1040 1120S K-1 worksheet, there is no mechanism in the ATX program to prevent this loss from appearing on Schedule E ( at least, I have not found some "option" to "check off" that would produce the correct handling.). There is no section of this 1120S K-1 worksheet in the 1040 file that deals with shareholder basis. It would appear that the advisement to "carry this amount to next year" SHOULD have prevented the amount from appearing as a loss for this year on line 1). At this point, I CAN: 1. NOT put the line one loss from the K-1 on the 1040 1120S K-1 worksheet, which would not be a "normal" entering of K-1 information into the 1040, or, 2. Enter the K-1, as is, and then override the Schedule E, page 2 entry to zero (based on the {1} "Shareholder Basis Statement" and {2} absence of shareholder basis) BUT, I always hesitate to override the software unless I am absolutely positive that the program is not handling the situation correctly and no unseen consequences will occur. I do appreciate your thoughts and feedback. An afterthought --- I can understand, in the situation of passive loss (with adequate basis to make the loss otherwise deductible), (1) the S-Corp would NOT have access to information about any other passive losses or income that this shareholder might have, to be able to determine if the loss was deductible this year and, (2) the deductibility of the loss WOULD be determined at the shareholder level ----- but the absence of basis would prevent this consideration from even coming into thinking because the loss is NOT deductible - no basis - at this point, the loss should STAY within the S-Corp and be shown on next year's K-1, as a current loss, IF there is basis next year, OR as an increased carryover to the next year following, if there is still no basis. Am I missing something? Should I simply override the program, eliminate the loss deduction and get on with more productive work?

2 Shareholders, 50/50, in S-Corp. Operating Loss this year. K-1 shows ordinary loss. Shareholders have invested NO money in the business and this is the first year of operation. The business has been funded by commercial loan with shareholders' personal residence as collateral on the loan. I calculate this to mean shareholders have no basis - they have not invested any personal money or property in the business and there has been no profit. I interpret this to mean the loss on the K-1 cannot be deducted - cannot be used to offset income from other sources (W-2), i.e., loss is carried over to future year(s). One shareholder is active in the business the other is passive (home collateral only). ATX is carrying loss on K-1 to 1040. I don't think it should, because (1) active shareholder has no basis, (2) passive shareholder has no basis nor any passive income. Second question - ((Even if passive shareholder DID have other passive income, the absence of shareholder basis in the S-Corp would prevent the S-Corp passive loss from being considered on the 1040. Correct?)) What am I missing?

Loan agreement is made out to the Company, not the Shareholders. Loan proceeds were either (1) paid directly to lienholders as part of the purchase or, (2) deposited into Company checking account (in the same bank). Shareholders got $3,000 directly to their personal account because (according the shareholder) they did not have Company checks printed yet and needed to "pay some bills" immediately. I appreciate the comments and insight.

Joel, You said, "Agreed. The money they put in from the loans is the only basis they will get here. Unless of course they put their houses into the partnership by transferring title, something they probably won't and shouldn't do." They did not "put in" money from the loan - the bank did. Loan proceeds was in the form of a check payable to the Company (S-Corp), not the owners of the Real Estate.

1. KC. 1. Loan is in business name. 2. S-Corp.

Two 50% shareholders borrowed money to buy/start a business. Bank commercial loan has both women's residences as collateral on the loan. Residences are not involved in the business. Loan documents describe loan as "Commercial Loan," not "Home Mortgage." No 1098 issued. Does the apportioned % of value of the homes become basis for the shareholders? Does the amount of the loan constitute basis, calculated by the apportion of collateral value for the loan? The FMV of their homes is approximately the same - the homes are similar size, quality, in the same residential development. No other funds have been "invested" in this business except this commercial loan. Do these shareholders have basis because of this loan collateral? Comments appreciated.

You said.... "Is it possible that once ATX Tax program is discuntinued we will not be able to get the data..?" I cannot imagine this would/could be a problem with "ATX Tax Program," since the "data" is in the "Database" folder ON our computer, IN the tax program. As long as the tax program opens, the database folder should be accessible. One possible "ounce of prevention" could be to create a .pdf copy of every return, every year, something I have been doing anyway. I store a .pdf copy of client's return in client's folder (outside the ATX program) and also put a copy on a CD for the client. And just to be completely accurate, I usually create three .pdf files. "Filing" "Client," and "Preparer" copies, and the Preparer copy is EVERY form, worksheet, EVERY item listed in the print manager - just to make sure I have a copy of every component of the return, whether it was used (contained data) or not. One other possibility is to make a copy of the "Database" folder and store it outside the ATX program. This would still require that the TAX program open in order to open the returns in that Database folder - at least to open them AS a tax return and work on them, rather than just open to "read." One "complication" in this is that the files in the Database folder are "named" with numbers, not the client names. It seems that I remember some method to convert this "name" to the client name, but I don't remember how. By the way, you access the "Database" folder via "My Computer," "Drive," "Program files," ATX year involved, and "Database."

Things and times do change. Several years ago, I contacted ATX to find out how to use my old ATX programs (bought when I had WIN 95 and 98) with XP. My cost was $20.00 for each year for an "XP compatible" CD - and that included the shipping. $100!!! Interesting, and it would seem one more reason to "not yet trust" CCH!

Just an observation..... 35,000 users IS a lot of customers and revenue ( AND, I thought from past marketing informaiton from ATX, that number was closer to 50,000?) BUT, within the spectrum of total CCH revenues, I wonder what: 1. the percentage of ATX is to total CCH revenues. 2. is the profit margin for ATX (compared to TaxWise, etc.) - the "scope" of content of MAX would require more than a little effort to maintain and support, perhaps more than for TaxWise, for example??? It only takes one lie to destroy trust. It only takes one "screwup" to destroy confidence. Trust and confidence are both traits that take TIME and EFFORT to build - or "rebuild."

Not "start up" - literally "moving" an existing, ongoing business from one location to another. Move involved moving equipment, new sign - "normal" expenses involved in relocating. Distance involved - 1 mile, but I am not sure that is significant to the question. Question - capitalize or expense? I realize that some of the components of the move are capital expenditures, e.g., leasehold improvements, sign, but other items I have some question, e.g., employees used (on payroll) to move equipment, tear down and set up; company vehicle for transport.

Instructions? You mean there ARE instructions? No wonder I had so much trouble this season!

Two thoughts: 1 I have submitted quite a few returns showing refunds to Berkheimer over the years. I have always inclosed the attached documentation to document the refund, i.e, PA Form UE, Federal 2106, and have never had any problem getting refunds. 2 Several counties in PA do have their own forms, e.g., Lancaster and York. Most smaller jurisdictions choose to use an independent administrator like Berkheimer - read that as "outsourcing."

In ATX, the local return most used is F1, filed with Berkheimer, a tax administrator in Bangor, PA. www.hab-inc.com, 800-701-7206 or 610-588-0965. I am not sure where your "Lawrence" is in PA. There is a village as well as County of Lawrence. Call Berkheimer and ask about it. Berkheimer withholding would usually be from .5 to 1.5% If you use F1, note that it is a legal size form - printer should remind you.

That worked. I saw that earlier, but thought: --- I hate to put anything in that worksheet that is not ON the 1099 and --- There is nothing in box 2a on the one 1099. But using those entries produced the "Rollover" on 1040, page 1 in the margin. Perfect. Thanks.

I have two Forms 1099-R one with code J (Early Roth Dist) and one with code 1 (IRA early dist.). I have a Form 5498 for both (from a different carrier). These should both be non-taxable rollovers. How do I (1) get ATX to tie them together, and (2) report it appropriately on the 1040? I haven't been able to find any "checkbox" anywhere to create the link to make it work.

Quote........ "The interest % is calculated from the business % of usage. Just enter total interest on Asset Entry and the correct amount is entered by ATX program." Life is indeed a learning experience! My appreciation to the "teachers" on board this board! And to think, someone designed to call me an "advanced" member! The older I get, the more I realize I don't know! Thanks again.

Michael, Doesn't EVERYTHING cost more on Long Island!!!!!

Two thoughts: -- 1 I have never heard of adding any interest and taxes to standard mileage rate. Cite? How much? -- 2 If you are using ATX, and use standard mileage allowance, you will see a "depreciation detail" that uses the depreciation factor rather than normal depreciation rates. (Basis is adjusted and tracked)

"Ask to see his pay stubs." ?? He may not have 'pay stubs' as such. But he may have 'settlement sheets' or some similarly-named reporting to him of income and expenses, and perhaps this is limited to one for every trip, rather than a "settlement sheet" for each pay period. Some paperwork gets very complicated. How you handle any expenses found is another matter. If it should have been W-2, then "expenses" are limited to 2106, but the expenses need to be examined.

Indyscott short, sweet and to the point - an attribute I have never mastered. And... on target!

I beg to differ: - he didn't "give" anything. It's compensation - if it looks like a horse, acts like a horse, eats oats, and puts "road apples" down as it walks, lets call it a horse! For it to be (read that as "have been") a gift, takes tax planning, not terminology "restructuring." - he didn't give (just) $25.00. Just because you are thinking of limiting it to a "gift" that could be deductible, doesn't mean the amount is automatically lowered to, and limited to, $25.00. The amount "paid" is, and always will be, the actual amount of money involved. I can understand the rationale of using this kind of "explanation" to enforce the significance of documentation and correct handling and reporting, but it needs to be expressed specifically as a "theoretical" and not an actual potential! I think this "argument" is better left unsaid! As Mr. Farmer, when accused, "Weren't you working when Reagan was shot?" - he said, "Not on my shift!" And for those of you who don't recognize the quote, dig in the archives and watch the movie, "Bodyguard!"

May I suggest your FIRST course of action is to ask the employer to give you the notice from IRS that says do not file 941? I would want to read it myself and then think about what caused it and how to respond. Apart from this, if YOU are not doing the payroll, the question should be directed to whomever IS doing the payroll. The left hand not knowing what the right hand is doing is not a good situation. Edit Thought...................... I guess I am thinking that whoever is doing the payroll should be (1) doing the 941s, SUTA, etc., and (2) be responsible to deal with this notice.

After posting the question, I took time to look at last year's returns and back up info. Same lengthy list of funds, each with dividends - each with a different FEIN. I showed a single entry for Vanguard dividends on Schedule B and did not provide copy of detail with return. I have been doing this taxpayer's returns for about 30 years. I never noticed the varying FEINs before - and never had a question from IRS. However, in light of increasing "sensitivity" from IRS, it would seem worth the effort to list them individually - for several reasons: -- Even though Schedule B does not have provision for listing dividends by FEIN, just "Name of Payer" - the Vanugard 1099 does NOT show a summary total of dividend dollars listed - therefore, there would not be a single line total on the 1099-DIV to compare with a single line entry on the tax return - no "matching" figures. -- I can attach a copy of the dividend "Detail" - and hopefully, by providing the informaton with the return, avoid (even) the potential of a letter of inquiry from IRS - letters that upset the taxpayer, whether justifiable/explainable or not.