OldJack

Did he actually sell stock to an individual or company or did he sell assets?  $15,000 appears to be his inside tax basis but his personal outside basis is what counts.  As an example he could have bought the stock from someone else that had the $15,000 basis and paid $85,000 for the stock which would be his 1040 basis.  There could be a loan to the corp from him that would increase basis.  You have to find out more from him.

20 hours ago, rfassett said:

So yes it is a violation of the tax code as I understand it to elect to be an S-Corp simply in an effort to recognize losses on a PSC that is no longer operational. You either loose those losses or you figure out a way for the PSC to make $$ to offset losses. However there is no language in IRC 1362 prohibiting a viable ongoing PSC from filing IRS Form 2553 Election by a Small Business Corporation .

 

This is IF the business is already a C-Corp PSC and electing to be an S-corp.  I don't think the original post was talking about a C-Corp already existing, rather a new business (non corporate) electing to be an S-Corp or a S-Corp continuing as an S-Corp.  Only a C-Corp can be a PSC.

An S-Corp is never a PSC.

Do you know what he deducted on his 1040?

21 hours ago, Abby Normal said:

You don't usually get something for nothing.

And just what do you think this partner got?  It appears he lost all of his investment.

7 hours ago, Randall said:

I'm wondering how she can have capital gain.  Did the partnership just make a book entry to even the capital accounts?  I don't see how that would make her have a capital gain.  Was the capital gain reported on her K-1?  I'm not sure I'm following what actually took place at the partnership level and what the source of a capital gain was.

More details are needed.  I don't think there is any capital gain.  If you are thinking this partner has been relieved of a liability you are not thinking correct.  All general partners are fully liable for all partnership debt even after termination of the partnership.  He may still be personally liable to banks or other partners.  Just because there is a negative book capital account does not mean there is a liability, it could simply be from partnership losses that were not allowed by the partners individual tax return due to outside partner basis.  If he made a contribution to the negative account (to make zero) it would not be a taxable event but would simply increase his outside tax basis.   It could be that all partners have an equal negative capital account from losses of non-recourse loans.  This is partnership accounting not corporate accounting.  Remember a partnership is nothing more than two or more sole proprietorships.  A negative equity account of a sole proprietorship does not create a capital gain for the owner. 

Well... maybe and maybe not.  she has an outside basis to consider.  Partnership losses would not have been deductible if she didn't have outside basis and she may have outside basis.  That book basis on the partnership may be immaterial.  Partnership agreement and Outside basis rules.

client gone.  lol

Thanks for the comments.  Now I find out they filed 2015 as married joint tax return and refuse to file an amended return.

Not sure I understand your question but you may be looking for from 1065, page 4, line 19a.

After contact with the IRS they said it "fell through the crack" and would now be issued.  lol

Taxpayers live in a state (Missouri) that does NOT recognize common law marriage unless they were common law residents of a common law state and moves into the not-recognized state.  Taxpayers visited a common law state (Colorado) and in a park declared they were married before returning to the not-recognized state.  Taxpayers want to file a married filing joint federal income tax return.  My review concluded they do not qualify to file a joint return as they are not considered married in their resident state.  And you say??

Ref:

Publication 17 (2015), Your Federal Income Tax
www.irs.gov/publications/p17/ch02.html

Married persons.   If you are considered married, you and your spouse can file a joint return or separate returns.

Considered married.   You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests.

1. You are married and living together.

2. You are living together in a common law marriage recognized in the state where you now live or in the state where the common law marriage began.

3. You are married and living apart, but not legally separated under a decree of divorce or separate maintenance.

4. You are separated under an interlocutory (not final) decree of divorce.

Thanks all... I didn't know if the priority line number was still in use.

Its been years since I had a client that has not received their refund after timely filing.  Check your refund webpage says its in process.  What phone number would the tax payer or I would call to find out what is going on?

edit: Its a simple farm and works in town tax return with no losses.  Single taxpayer, no earned income credit, no credits, etc.

It's how I would do it.

Assuming the wife gave her share of stock to her husband there's no taxable transactions and the stock basis transfers to the husband.

If sales agreement does not allocate you list all sold asset at fair market value and determine each assets percentage of total FMV.  Each assets percentage is multipled by the total sales price with remaining sales price classified as Goodwin.  Technically there is an IRS form that both parties of the sale is supposed to attach to their return in the year of sale.

No it doesn't disappear or is ignored.  You must determine facts as why she is no longer a shareholder and treat accordingly.

Technically a corporation (C or S) is required to file a federal tax return each year until legally dissolved by the secy of state of incorporation regardless of taxable income.  It is common however to file a final federal tax return in the year of liquidating dividends with no assets remaining.

I am really surprised that no one challenged me on my S-Corp example of the sale of the asset.  The $300 gain is the S-Corp book gain and not the tax gain.  When the S-Corp reports the sale on form 4797 it shows sale price of $5,300 and tax basis of $200 with a gain of $5,100 passed through to the shareholder.  The shareholder has zero basis in the asset and is taxed on the full $5,100 since his $200 basis is now the basis of his shares of stock and not the asset he contributed and was sold by the S-Corp.  The difference in the $300 book gain and $5,100 tax gain on the S-Corp 1120s is accounted for as an adjustment on Sch-M1 of the 1120s.

On ‎6‎/‎14‎/‎2016 at 9:42 AM, Abby Normal said:

>>The carryover basis just refers to the fixed assets. You just keep the same depreciation schedule. Cash, inventory and any other assets also come over just as they are in the Sch C, as do all the liabilities. <<

Remember, if liabilities assumed by the S-Corp exceeds the transferor's adjusted basis in the asset the transferor has a gain recognized to the extent of the excess (code sec. 357(c)(1)).

>>The main things you need to know is that basis can NEVER go below zero. Distributions in excess of basis are taxable as capital gains. ATX defaults them to short-term but after the first year they're long-term.<<

Remember, basis can never go below zero for the shareholder deduction of loses, not to be confused with the equity or AAA account of the S-Corp.  All losses pass thru to the shareholder(s) regardless of S-Corp basis and loss limitation is considered at the shareholder tax return.

 

Will, I agree and disagree with the carryover basis.  For depreciation purposes and the shareholder's individual basis it is carryover basis.  But for the corporation stock issue value and S-Corp book basis it is the market value at time of the asset contributed in exchange for the stock.  For example shareholder A contributes equipment (carryover basis $200) with a market value of $5,000 for 5000 shares of stock and shareholder B contributes cash of $5,000 for 5000 shares.  The Corporate books show depreciable equipment cost $200, non-depreciable equipment cost $4,800 (think like land), cash $5,000 and capital stock issued $10,000.  If the S-Corp was to short-term sell the equipment for $5,300 it would pass thru a $300 taxable gain and the shareholder would have a $100 taxable gain on his 1040.

The only form that shows actual asset distribution (other than taxable income) is the estate tax return which you say is not needed in this case. 

Remember the 1041 is a deceased/estate "income tax return" not a form to report distributions of assets.  If it is taxable income to the deceased or estate then it is reported on the 1041 otherwise it is not.

Ownership of the property is irrelevant as the corp lease requires the corp to repair.  The repair would either be capitalized as leasehold improvements or as repair expense.  Insurance refund would either reduce the leasehold basis or reduce the repair expense.