OldJack

This is a C-corp and the rules do not require an officer to take a salary UNLESS there is the issue concerning moneys taken out that are not dividends. That would be in this case since there was no proper documentation of a loan. I didn't intend to criticize, only point out standard practice (to readers) working with an IRS auditor.

>>I told him from the beginning<< A taxpayer representative should normally only respond to questions from the IRS and not disclose anything otherwise.

This is a C-corp and there is no difference between retained earnings for the corporation and for the IRS. Of course you can have a difference between the taxable income for a year and that difference is shown on page 4 Sch-M of the 1120. Had the C-corp and shareholder properly documented the loan to the shareholder the IRS probably would not have had a case. This is an example of the shareholder thinking they are the same as the corporation, and now the $12,000 has been subjected to possible double tax by way of the corporation tax and the shareholder tax. Also, the dividend paid reduces retained earnings in the year paid and is not an expense... so no tax deduction.

>> You owe us $2,620,000 and the FMV of the house is $2,600,000"<< That means "for your tax purposes you are selling the house to us for what you owe us plus the fair market value and we will resell it!" After we sell it we will issue a 1099C telling you any cancellation or forgiveness of debt.

Ending retained earnings would be the retained earnings beginning balance for the year plus all revenue for the current year less all expenses for the current year regardless if the revenue is taxable/non-taxable or the expenses are deductible/non-deductible. Another way of looking at it is retained earnings equals all assets less all liabilities other than retained earnings itself. Also, any dividends paid would reduce retained earnings. Only an "extraordinary" income or expense related to a prior year would justify restating the prior year beginning balance of retained earnings. Your IRS audit adjustment of a prior year would not be defined as extraordinary and therefore such expense would be counted as a current year non-deductible expense in the year paid.

Well... I believe the foreclosure is like a sale and the accounting sale price is $5,220,000 (2,620,000 loan+FMV 2,600,000), therefore the book loss on the S-corp form 4797 or Sch-D is $380,000 (5,600,000-5,220,000). Such loss then flows thru to the shareholders.

Federal taxes are recorded on 1120, page 4, Sch-M, regardless if the balance sheet on page 4 is on the cash basis or accrual. State taxes are deducted on page 1. On the 1120, the Federal taxes and penalty are shown on page 4, other items are deducted normally in accordance with accounting method. For book purposes all payments are deducted from profit and reduce retained earnings in accordance with accounting method. For book purposes all payments are deducted from profit and reduce retained earnings in accordance with accounting method.

Well... sometimes we should think twice about what we ask a client. Granted, the live-in's paying something could question the deduction calculation, however, if they are only paying for certain shared expenses that does not mean it is reportable rent income. Check all facts with the client.

Most likely you show it as a personal nondeductible asset and allow standard business mileage if he can justify any... [which is doubtful].

>> Can I just charge 5% annually and forget about<< In my opinion a tax preparer does not have authority to determine interest rates on a client loan. Suggest you ask the clients to provide you with their terms on the loan. If the loan goes bad guess who they might sue? As far as the IRS is concerned the interest rate is not a question if it is more than the AFR rate.

I agree with Jainen. No allowable deduction in either case.

When would a note call for interest and not state the interest rate? You should not be imputing interest, the note should state the interest. If no note document, ask the parties what the interest rate was agreed.

>>OldJack, the house purchases are intended to be for rehabbing and resale according to the LLC purpose<< Rehab and sale does NOT, in itself, mean it has to be inventory rather than investment. Of course the IRS would not argue with you calling it inventory.. unless it was sold at a loss. >> It just seems painful to treat each as a separate loan with fmr interest, etc.<< Then why not consider them temp demand interest free notes and consolidate the loans before the end of the year with interest at the applicable federal rate (AFR).

>>house would be inventory, wouldn't it?<< Maybe...maybe not! Why not ask the client if they purchased as an investment? Its really not your call. >>The second question... << You failed to say how the LLC is to be taxed.

Not to fret, the IRS income tax department will be history in a few years. IRS employees will not be able to pass the test.

LMAO!!!

>>If your business is anything but Schedule C, no, it's too complicated. Even for a sole proprietorship, it can never be real clean. << It should not be complicated for those on this board, as we are all accountants or business people that have to deal with clients that do the commingling. If we can't do our own business we should not be doing taxes for others. As was said, its the proper receipts and proper documentation/procedure thats necessary for IRS and not the funds pot. >>If there were 100% compliance, all employees who use their personal credit cards and get reimbursed by their employer would have an entry on line 21 on form 1040 when they use the miles accumulated.<< As I recall, sometime ago, the IRS ruled airline mile benefits were not taxable to the employee.

No form 1065 needed. file only 1040 Sch-C.

You can't believe everything you read. Sure you can be reimbursed for expenses, but for the S-corp to claim sec. 179 for a vehicle the S-corp must own the vehicle. If the S-corp reimburses for the cost of the vehicle, then title must pass to the S-corp as a deemed sale. Of course the S-corp passes sec. 179 expense/deduction to the shareholders which may include a prorated portion to shareholders other than the one selling to the S-corp. This is the same for a C-corp other than nothing passes to the shareholders.

Only if your business is nothing but taxes.

I got it. The IRS never helped me with anything and I don't intend to help them unless it would help them go out of business!

They purchased and printed the sandwich wrappers, much the same as this contractor's sign. Both get their advertising material back from the customer. Hee Hee!

Perhaps the contractor is trying to get the accountant to show more income than actual and the accountant may get sued by a third party. Under this theory, McDonnell Hamburger should give out 1099's for senior discounts. Many seniors visit every day and get discounts. Using the same bogus theory you would depreciate the sticker window price on purchase of a new automobile with a 1099 issued by the dealer.

You got to be kidding to think big public corps don't reimburse there employees and that is not under an accountable plan.

>>In order for him to claim the discount as advertisement, he needs to issue a 1099<< Nonsense! His deduction is from incurring the expense of buying the sign and calling it what it is... a sign for advertising. There is no discount to record and no 1099misc to issue as there is no payment that qualifies. Issuing a 1099 does not justify a deduction for anything. A 1099 is only a report.