DANRVAN

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.

Since the suspended loss occurs at the shareholder level, I don't see why you would change anything at their level. For example, if the individual had a $50,000 prior years suspended loss from the Sub S, it would remain on his/her K-1 input sheet for ATX and continue to flow to form 8582 as such, regardless of the exchange of property within the corp. At the shareholder's level, the S-Corp is the passive activity that is limited on form 8582, so there is no change in this situation. If there was a change, you would make it on the K-1 input sheet for the individuals personal income tax return. Does that make since or am I missing something here?

Correct, the release of the suspended loss would offset the recognized gain from the boot.

Also use that tab if you have a new client with suspended loss.

There is an input tab for Schedule E to enter the loss limitations. It will carry over to form 8252.

No, but have worked with a public charity that had to be reclassified as a PF, and have researched the issues to convert back to a public charity. I am curious to what criteria you are using to establish the organization has met the requirements of a public charity since the date of incorporation?

The amount on line 13 of the K-1 is netted with the amounts in box 1 and 2 of the K-1 and should flow to Schedule E page two as a lump sum. That is correct.

If that is the case she is in the zero percent capital gains tax bracket. It is not taxed at ordinary rates.

Since it is a capital gain, the unrecaptured amount is combined with all the 1231 gains on form 4797 and carried over to schedule D in one lump sum. However, when it comes to the capital gains tax computation; the 1250 gain is segregated to determine any amount that might be taxed at the 25 rate. It is especially important to understand the unique tax aspects of section 1250 in the planning stages.

The difference between ordinary gains and capital gains is anything but trivial, as well as the tax planning consequences. Section 1250 is probably one of the most commonly misunderstood sections of the tax code.

Unrecaptured 1250 gains are included in the computation of adjusted net capital gains per sec 1(h)(3)(A)(1). Therefore they are reported on schedule D (flows from 4797) and the related Capital Gains TAX worksheet. From a practical and planning standpoint they are capital gains and offset capital losses.

I think you meant to say where it is taxed at capital gain rates. 1250 gains are a hybrid; ordinary gains taxed at capital gain rates with a max rate of 25%. The special tax treatment comes from the strong lobby arm of the real estate industry.

How can he still receive payments if the contract was paid off? Just because attorney decided it should be? How can you convert an installment contract to a note and consider it paid off....and seller still holds a deed of trust? Forgive me if I am overlooking something here and jumping to conclusions; but this guy sounds like a predator.