Jack from Ohio Posted June 10, 2013 Report Share Posted June 10, 2013 Single owner S-corp acquired a business loan in 2008. Company has barely made a profit or had losses since its inception in 2006. Loan went into default. Owner signed to per personally liable for the debt and started making payments in 2010. Bank wrote off $60K in 2012. 1099-C was issued with S-corp EIN on it. Client wants to take the insolvency exception on his personal return. (He had large 1099-C amount in 2011 and we filed 942 with the associated insolvency sheet.) It is my contention that the S-Corp must claim the COD as income with the associated passthrough to him as sole owner. He is attempting to make me feel guilty because I informed him that unless the bank will re-issue the 1099-C with his SS# on it, the S-Corp must claim the income and "I do NOT want to pay tax on this money!" Any ideas from anyone? Am I thinking correctly, or can he take the insolvency exception on his personal return? I don't have tissue paper feelings on my shoulders, so shoot straight with me. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 10, 2013 Report Share Posted June 10, 2013 Jack I think you are on the right track. Perhaps there are some suspended losses from the Sub S that can offset some of that income? Quote Link to comment Share on other sites More sharing options...
Lee B Posted June 10, 2013 Report Share Posted June 10, 2013 Since individual taxpayers are required to report cancellation of business debt as follows: Sole Proprietorship (nonfarm) - Schedule C Rental of Real Property - Schedule E Sole Proprietorship (Farm) - Schedule F I think you're on the right track. No insovency exemption. Quote Link to comment Share on other sites More sharing options...
JohnH Posted June 10, 2013 Report Share Posted June 10, 2013 --> He is attempting to make me feel guilty because I informed him that unless the bank will re-issue the 1099-C with his SS# on it, the S-Corp must claim the income and "I do NOT want to pay tax on this money!" <--- Jack: Is he trying to make you feel guilty, or is he somehow trying to make you feel liable? You know how weird things can get with some clients, especially when they're in trouble. Their imaginations run wild and their common sense even wilder. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted June 10, 2013 Report Share Posted June 10, 2013 >>can he take the insolvency exception on his personal return?<< No, insolvency (and reduction of tax attributes) must be calculated on the corporate level. Why should you feel guilty? It was entirely his own choice to remain an S-corp during his years of loss, and he personally claimed all those losses. In other words, he's ALREADY deducted that money, and then stiffed the bank that actually paid it! 1 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 11, 2013 Report Share Posted June 11, 2013 Yes, he's trying to have his cake and eat it too. No way is that your fault. Tell him, "that's the law, so that's how it has to be reported." Quote Link to comment Share on other sites More sharing options...
KEYWEST_RICKS Posted June 11, 2013 Report Share Posted June 11, 2013 maybe he hasnt already deducted thoses losses from prior years. is it possible that he had a basis limitation and has carryforward losses? Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 11, 2013 Author Report Share Posted June 11, 2013 There are no loss carryforwards. The last two years there has been a $3-$5K profit. Any loss carryforwards were used in 2009. This fellow has already skated on $145K of COD on his personal return in 2011 by being insolvent.. All was credit card debt. He is a system player and I do not feel guilty, I just wish I could politely tell him what I think of his tactics and attitude toward life. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 11, 2013 Report Share Posted June 11, 2013 Jack I thought you are a straight shooter. Just tell him what's on your mind! Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 11, 2013 Author Report Share Posted June 11, 2013 Jack I thought you are a straight shooter. Just tell him what's on your mind! This is for a client at the firm I work for. Not my personal client. I must use filters. Quote Link to comment Share on other sites More sharing options...
jainen Posted June 11, 2013 Report Share Posted June 11, 2013 >>This fellow has already skated on $145K of COD on his personal return in 2011 by being insolvent.<< Our elected representatives make the laws. Concerning the debt economy developed during the prior administration, there are excellent reasons public policy now calls for such clean starts. As long as he follows the law, why should we disparage his "tactics"? Perhaps it's the law you don't like, rather than the people who follow the law. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 11, 2013 Author Report Share Posted June 11, 2013 >>This fellow has already skated on $145K of COD on his personal return in 2011 by being insolvent.<< Our elected representatives make the laws. Concerning the debt economy developed during the prior administration, there are excellent reasons public policy now calls for such clean starts. As long as he follows the law, why should we disparage his "tactics"? Perhaps it's the law you don't like, rather than the people who follow the law. I dislike special breaks for deadbeats and intentional low lifes. Special breaks for someone who has experienced unexpected or uncontrollable events is not a problem. People who live their lives recklessly and with no regard for how it affects others do not deserve special breaks when things go bad. This country is on a runaway path downhill by rewarding irresponsible behavior with debt relief and tax breaks. I guess the ethics I grew up with about personal responsibility for my actions has been thrown away by our society such that the irresponsible people are living on my tax dollars. 2 Quote Link to comment Share on other sites More sharing options...
jainen Posted June 15, 2013 Report Share Posted June 15, 2013 >>the ethics I grew up with about personal responsibility for my actions has been thrown away by our society such that the irresponsible people are living on my tax dollars<< Personal responsibility is a fine thing for one to apply to oneself. In my opinion, it isn't all that personal if one applies it to somebody else. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 16, 2013 Author Report Share Posted June 16, 2013 >>the ethics I grew up with about personal responsibility for my actions has been thrown away by our society such that the irresponsible people are living on my tax dollars<< Personal responsibility is a fine thing for one to apply to oneself. In my opinion, it isn't all that personal if one applies it to somebody else. If a person applies personal responsibility (which also means doing, providing and taking care of one's self and family) then no one else will see the need to tag that person as lacking personal responsibility. Your point does not apply, due to the very definition of personal responsibility. Quote Link to comment Share on other sites More sharing options...
jainen Posted June 16, 2013 Report Share Posted June 16, 2013 >>Your point does not apply, due to the very definition of personal responsibility<< I wish that were true. The problem is that "providing and taking care of one's self and family" needs to be done within the law. I was responding to a comment about people who DO stay within the law, but are still accused of irresponsible behavior anyway. If you don't like the law, then deal with that. Don't blame the law-abiding citizens who are trying to take care of themselves and their families. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 16, 2013 Report Share Posted June 16, 2013 Are you saying that anything is OK as long as there is not a law against it? That "lawful behavior" EQUALS "ethical behavior"? On that I can not agree. Personally, I can think of countless examples of individuals breaking the law and being very moral or ethical. MLK comes to mind. For me, a useful conceptualization of ethics has to differentiate between legal and ethical. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted June 16, 2013 Report Share Posted June 16, 2013 >>a useful conceptualization of ethics has to differentiate between legal and ethical<< I agree, kc, and suggested that just a few days ago (in the thread "Who Is Responsible for Taxes Owed?"). In that case, an estate had been increased by the deceden'ts undeniably illegal avoidance of personal financial obligation. You described a similar case in which you had used a legalism (joint title) to quash the "emotional" issue of morals. But in this thread it's a bit different. I'm objecting to the prejudicial profiling as "irresponsible," when the only thing we know about the taxpayers is that they are poor. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 16, 2013 Report Share Posted June 16, 2013 Sorry, but that is not how I read the situation. The client wants to avoid the 'lawful' tax owed on the benefit he got from the bank's absorbing his loss. Jack was expressing his opinion on someone who got into a bind based on his own choices, got a big tax break already, legally, and still is not willing to accept even the much reduced obligation that is legally owed. Seems to me that 'being poor' does not excuse him from his personal responsibility to follow the law. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted June 16, 2013 Report Share Posted June 16, 2013 >>someone who got into a bind based on his own choices<< What choices are you talking about? Perhaps Jack knows more than he has said, but for some reason he has not provided a single fact to explain why this entrepreneur was unable to pay his bills. All we know is that in the past he was credit-worthy and now is insolvent. Please tell me why you think being poor is his own fault. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 16, 2013 Author Report Share Posted June 16, 2013 Single owner S-corp acquired a business loan in 2008. Company has barely made a profit or had losses since its inception in 2006. Loan went into default. Owner signed to per personally liable for the debt and started making payments in 2010. Bank wrote off $60K in 2012. 1099-C was issued with S-corp EIN on it. Client wants to take the insolvency exception on his personal return. (He had large 1099-C amount in 2011 and we filed 942 with the associated insolvency sheet.) It is my contention that the S-Corp must claim the COD as income with the associated passthrough to him as sole owner. He is attempting to make me feel guilty because I informed him that unless the bank will re-issue the 1099-C with his SS# on it, the S-Corp must claim the income and "I do NOT want to pay tax on this money!" Any ideas from anyone? Am I thinking correctly, or can he take the insolvency exception on his personal return? I don't have tissue paper feelings on my shoulders, so shoot straight with me. Notice the bold and underlined words from my original post.... He could pay the tax if he would choose to. He thinks he can play the system and avoid it. This time he jumped without asking. >>someone who got into a bind based on his own choices<< What choices are you talking about? Perhaps Jack knows more than he has said, but for some reason he has not provided a single fact to explain why this entrepreneur was unable to pay his bills. All we know is that in the past he was credit-worthy and now is insolvent. Please tell me why you think being poor is his own fault. The person in this situation has never been poor. His lifestyle is far from any semblance of poor. He has always been a "player" with finances and the company he owned. His actions with other financial dealings have saddled other "partners" with huge debts. Yes, there are other things that I know, other financial actions he has taken and other "informed" choices he has made that I make the statements I do. I have not told of them because they have no connection to the situation I posted about. In 5 years of doing his 2 S-Corp and his personal returns, I have witnessed no hint of "personal responsibility" or "honoring contracts signed" in his words or deeds. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 16, 2013 Report Share Posted June 16, 2013 Just a matter of time before it catches up to him! It will not be pretty when it does. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.