DANRVAN

So it sounds like dad passed away and mom received a stepped up basis (100% if community property state). Then she created life estate and house was sold while she was still alive. So children, including your client, received part of proceeds based on their interest, which should have been allocated per life expectancy tables. Since it was a completed gift, children receive a share of mom's basis. Mom's basis should be prorated in the same manner as the proceeds. So children receive a portion of stepped up basis from death of first parent in this case.

I agree with Lion. You have no idea if this taxpayer would benefit from becoming an S-Corp. Most likely not if business and personal account is intermingled.

Exactly. Winding up the business takes time.

You are correct, I said that backwards; left brain vs right brain. If he had 5 vehicles but one was strictly used as a spare when one of the other four was not in use he could continue to use SM.

Looks to me like they should be deductible, but aren't you past the three year window to amend a 2018 return?

Did you get the transcript?

I have been using ATX for about 20 years and have no reason to switch.

Your software should take care of that Pacon. With ATX you use the fixed asset module to input the actual cost data. Then it allows you to toggle back and forth between actual cost and SM on a year to year basis. Does he use all 6 at the same time? The rule states you cannot use five or more simultaneously. So for example if he had five vehicles, four used all the time but kept one as a spare he would be allowed to continue using actually expense method. Not sure what you mean here.

I am curious if any other assets are held by the LLC. Is there a business activity operated by the LLC?

This is not clear to me. Sounds like there might have been a completed gift if children were on the deed and received proceeds from the sale. Mom received step up basis but is still alive? Do you mean from husband's share?

It appears you are referring to a single member LLC. An LLC has no meaning for tax purposes, it is a creation of state law. So for tax purposes it does not make any difference if the investments are held under the client's LLC .

OP indicates parent is paid rent by insurance company.

Looks like I misunderstood. So what you are proposing is a distribution payable by a note to shareholder #4? I don't believe you can call it a distribution until the shareholder is actually paid cash.

Are you proposing a loan to shareholder # 4 and call it a distribution? A loan to SH #4 would need to be repaid, so I don't see how it could be classified as a distribution.

Then the entity has a second class of stock and not eligible for S Corp status.

To the child yes, but to the "landlord parent" it would be income.

That is why I wish there was a mandatory requirement to provide a detailed depreciation schedule with the client's copy of the tax return. I am currently trying to track one down from an independent preparer that has seemed to have vanished.

Under the circumstances, it is worth a shot to seek abatement of penalties.

An LLC could be created by either an asset transfer, a stock transfer, or a liquidation. There is potential gain on the transfer of assets under any of these three methods. Regardless, you need to determine the basis of stock on DOD based on fmv for the heir(s). My first question would be what type of business is this? Secondly, I would request a list of assets and liabilities. In regards to depreciation, you can probably safely assume that most any 1245 assets reported on the last return nine years ago have been fully depreciated. Do they have any records or bank statements for the following years to determine any additional assets purchased? Is there a manager or key employee that might have some knowledge of such? Does the company own a building? If so the cost and date of purchase should be available from the courthouse. You mentioned shareholder salary, have payroll taxes and reports been filed? How about personal tax returns? Also, you might have estate tax issues to address. Offhand, I do not see a way around filing a current and past returns, with or without depreciation; the estate attorney might also wish to see copies.

Now I see the light, you are dealing with multiple properties within the S-Corp. Do you use a separate K-1 input sheet for each one? ATX allows you to manually adjust the suspended losses on the K-1 input sheets.

and you have properly done that where the transfer was at the S Corp level. Any future offset of the suspended loss will flow down the food chain via K-1.

If parents are receiving rent, then yes income. Are they paying fmv rent? Otherwise deductions are limited.

For starters, look at the closing papers and see whose name was on the title and who received the proceeds.

There are two options. The default method is to prorate based on the number of days of ownership. You can also make a section 1377 election to close the books on date of death and allocate per the actual time period of ownership. You need to determine which method will result in the least amount of tax. If the S Corp has assets which will be liquidated (especially real estate) the liquidation of assets and dissolution of the Corp need to be coordinated in the same tax period of the shareholder. Otherwise you might end up with a gain in one year and loss from stock in the next year.

I refrained from making any comments about holding real estate in an S- Corp.