OldJack

Well... It may not be a gift just because a deed was modified.  The question is did the kids actually take possession of the properties in any way.  If not it could still be no gift accepted and therefore an inheritance.  The bad think is the removal of the mother from the deed would imply a sale or gift.

>>They simply sold the property with only a small gain.<<

That is the income and/or taxable income distribution that is reportable on the 1041.  Distributions of property value are not reported as a 1041 is an "income" tax return.

>>Gonna respectfully disagree with you, OldJack.<<

That's fine.  I also have prepared prior year tax returns for those that have failed to file for many years.  I just make sure the decision is theirs so when they get the penalties later they don't blame me for anything.  It was their decision not to file and should therefore be their own decision to file now.

I would first ASK the taxpayer if she WANTS me to prepare and file those past years with her probably owing taxes.  Its not the preparers duty to be the IRS and collect their taxes.

I expect they are trying to say that the wages are not subject to social security withholding.  There would be no reason the IRS would be looking for a Sch-C as the wages are a W2.

>>Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9.

Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.<<

1099B is a sale of stock.  This is a company 1099-DIV, box 8 or box 9 liquidation distribution (see box instructions).  You should report on 1040 Sch-D with his cost basis as an offset.

This Jack agrees with that Jack!  Repairs.  Come on you guys, who pays your fee and who do you work for?  If in doubt give the doubt to the taxpayer as you can always give it to the IRS on audit if you have too. Geezz!!

Well there was an additional entry to remove/credit the sale receivable but for some reason the website is giving me a message that I don't have authority to edit my post.  You get the point.

Unless the S-corp had been a C-corp prior there are no built-in-gains. 

To keep it simple, as you say, here are the entries on the books of the S-corp:

Credit Sale of building (repo= proceeds + COD) $500k

Debit Receivable from Sale $500k

To record sale

Credit Cost basis of Building $500k

Debit Mortgage of Building debt relieve $500k

To remove building and mortgage

Therefore, there is no gain or loss to pass onto the 1120S-K1

Gain or loss is for the shareholder's 1040 to determine based upon receiving nothing verses his basis in the shares of stock of the S-corp.

Thanks for all your supporting comments.  Since an estate tax ID was never applied for, extension! extension!

Will be discussing this with the successor trustees.

You got me confused!  Do you need to file an estate return or a trust return?  Who actually owned the stock accounts, the individual or a revocable trust.  If the individual owned the stock you get an estate ID, if the stock was an asset of the revocable trust you need a trust ID.  You must determine the legal owner of the stock on the day before the date of death.

There are nine community property states in the U.S.

• • Arizona,

  • California,

  • Idaho,

  • Louisiana,

  • Nevada,

  • New Mexico,

  • Texas,

  • Washington, or

  • Wisconsin.

Why wait?

Form 1041 Instructions, page 17, quote:

"Every estate or trust that is required to file Form 1041 must have an EIN. An EIN may be applied for:

Online by clicking on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated."

Don't you just love posters that ask questions and then never respond to any answers.

Having the taxpayer's ID# on the 1099B is not a real problem.  The taxable income should be reported in the correct way regardless of the 1099B ID#.  Since the stocks were sold after the taxpayer's death it should never be reported on a 1040, rather a 1041 form.  From a tax standpoint it makes no difference if the 1041 is called a trust return or an estate return.  Who gets the money and/or pays the tax could certainly make a difference between being a trust or estate.  Distribution of the proceeds is irrelevant from a tax standpoint (TOD, Probate, Trust, etc).  Regardless of what form it is reported on there is a step-up in basis unless it was a non-revocable trust that owned the stocks and had already received a step-up in basis on the stock.

 Property is listed in potential clients name and social.

Pat

What would you accomplish by filing a partnership return now?

Sure a step-up for someone depending upon the facts.  Not enough details in the post.  The fact that mother put son's name on the account may not be a gift depending upon the time and other details.  Its the details stupid!  Tell us the details.

Obviously the stocks were never in the trust as the taxpayer never bothered to tell the broker to put the trust name on the account.  It really does not make a tax difference.  It should be reported on the individuals estate 1041 with a step-up cost basis.

>>When writing don't BS, lay out the problem, how it happened, and why they should consider penalty relief.<<

Keep it extremely brief and clear enough for a 5th grader to understand when dealing with the IRS!  That's about the limit of their intelligence and decision making.

Before e-file it was the taxpayer's responsibility to file their tax return.  E-file helps only the government with processing and now has become a source of government revenue.  How did we let that happen?

The only other thing that may come into play is if the shareholder has loaned the S-Corp money and the assets could be converted to personal use as a return of capital.

I agree it could be distributed 1040 tax-free as a return of capital for the shareholder's 1040 tax calculation, but I don't think that would keep the S-Corp from the requirement of recognizing full gain as of the dividend/distribution date. We have to remember that an S-Corp is a taxable corporation that simply is "allowed to pass" current taxable income to its shareholders for individual taxation.  Current taxable income in this case is from the disposition of the S-Corp assets at a taxable gain.  Sounds like most of the gain was from depreciable assets that would require full tax of the ordinary gain in the year of sale anyway.  The return of capital is really nothing more than a note receivable in lieu of cash.  The dividend/distribution is only a common tax-free note receivable in the hands of the shareholder as they did not sell the asset to qualify for deferred installment sale tax treatment.

I know how you feel.  I have lost my mind and I am pretty sure my wife took it!

You might ask the client if they filed Form 966 , Corporate Dissolution or Liquidation, as this would have been required before the installment sale to meet the liquidation exception.

You can't always let a client's problem become your problem.  This client is a problem client and you may be better off without them.  Why should you try to rewrite the past when they didn't worry about writing it correct in the first place.  They probably didn't file tax returns because their tax guy didn't tell them too. LOL.  I would look at their tax situation as it is and record/prepare it like it is.  If you try to redo their facts you will just encourage them to keep doing things wrong since they think you will make it right.  You should prepare based upon the facts and just the facts.  This type of client needs to be told that it cost them to not have a professional tax preparer like you in those past years. If the client doesn't like it they can always get someone else and you would be better off.

Sale of S-corp assets on an installment sale is not an installment sale that can be distributed to the shareholders without taxable gain to the S-corp.  If distributed to the shareholder, it would require the S-corp to recognize the full gain and pass the taxable income to the shareholder in the year of disposition.  An S-corp is not a partnership that can convert to personal and pass basis to shareholders tax free.