mli

I guess my point here is that I don't understand ATXs programming for the M-2 section. Why provide functionality for something that is almost never used? Instead, why not provide functionality for something that occurs frequently. i.e.- a check box that reconciles retained earnings, when distributions would create negative AAA? Seems like this would be easy to do and would be infinitely more useful.

Interesting. I will take a look at that. I found this in the ATX Knowledgebase says: ( Are they suggesting that you ignore the 1120S instructions for M-2? Doesn't appear right.) "How do I calculate Form 1120S, Page 5, Sch M-2, line 7, column (a) property distributions in ATX™." This problem can occur when you have not selected to Allow distributions to go in excess of AAA. To resolve the issue, do the following: Go to form 1120S. Select the Options tab. Select the Allow distributions to so in excess of AAA check box. Click Save.

ATX has the following option: "Allow distributions to go in excess of AAA". (This allows AAA on Sch m2 to go negative as aresult of distributions.) But the IRS 1120S instructions, specifically say that you should decrease AAA (but not below zero) by distributions. Under what circumstances would you use this option to "Allow distributions to go in excess of AAA"???

Okay, figured it out! First Step - you have to adjust the Other additions And other reductions worksheet to eliminated the timing differences. That makes Column A correct (i.e. cash basis AAA). Then you can make entries in the adjustment column to get accrual RE to balance. It was that first step that I was missing. Thanks Abby!

For an S corp who has accrual books and cash basis tax return, how do you prepare schedule M-2? Schedule L is book "accrual". Accrual to cash differences are on M-1. But ATX software prepares M-2 to match schedule L retained earnings. My understanding is that M-2 would not agree to schedule L retained earning (accrual) in this instance. Instead it is based on Tax (cash basis). It appears that the only way to do this is to enter a lot of overrides. Essentially, overriding every number on Sch M2. Is there another way? Am I doing this right?

No things are not separated due to related property rules. Things are separated simply to handle depreciation and deprecation recapture. I think you have hit on my original point. Consider 2 scenarios entered into ATX software: In both scenarios the facts are the same: a Related party sale total net gain =$10,000. (Made up of: • Gain on building = $20,000 • loss on land =$10,000) ==> Scenario 1 Sale of vacation home - Gain recognized on the related party sale is $10,000. ==> Scenario 2 Sale of rental home - Gain recognized on related party sale is $20,000. I understand the no netting rule. This result seems inconsistent. That was why I asked the question.

That is what I figured. Seems harsh... another related party trap I guess!

Related Party sale – losses aren’t deductible. No problem there. But what happens in a related property sale of rental real estate at an overall gain, if there is (1) a loss on the land, but (2) a gain on the building? Is the loss on the land still disallowed? For example: • Related party sale total net gain =$10,000. Reported on 4797 it is made up of: • Gain on building = $20,000 • loss on land =$10,000 Does the taxpayer have to recognize a $20,000 gain on the transaction and loss on land is disallowed. Or does the taxpayer recognize a $10,000 gain. If this was not depreciable property (vacation home) there would only be “one total value” and there would be no disallowed loss . It seems to me the property is only split to calculate depreciation, but does that create a situation where the loss is disallowed?

I could be completely wrong, but I didn't think you could use form 8453 transmittal for an 1120S. If you look at it, you will see that it is only set up for individual taxpayers. On a related note, can anyone tell me: Would the PDF copy of Form 3115 attached to an e-filed return need to be signed?. OR will the 8879 (or 8879S) be sufficient for the signature, as if the form had been e-field and not attached as a PDF?