business operations after death of 100% Scorp shareholder

[schirallicpa]

I have a client that owned a window store here in NYS and lives in FL.  He died last July 2021.  The guy that was working at the store continued to carry on with the outstanding orders (windows ordered last summer were just coming in in December).  So - I have lawyers telling me that there needs to be a tax return up until July 2021 and a second return for the remainder of the year.  

My understanding is the s-corp was done when he died, and the state allows a few weeks for the winding up of business to be included in the final return.  (and this is grey because of the delays in inventory stretching the time frame from a few weeks to a few months.)  There was not a second shareholder, and there was not a will.

I prepared the tax return thru December and marked it as final. I have not efiled it.

Am I not thinking right?

 

 

[Lee B]

Interesting situation. Even if it goes thru probate, isn't an executor appointed and doesn't someone end up inheriting the stock?

[Sara EA]

The 1120 should be filed with income/expenses until the date of death.  After that, it's a 1041 because the estate is now running the business.  The estate can adopt a fiscal year, which in your case will end June 30 2022 if that helps.

[Lynn EA USTCP in Louisiana]

1120S filed for full year. 2 K-1’s issued, one to deceased for the period 1/1-DOD, 2nd to estate for the rest of the year.

[schirallicpa]

3 hours ago, Lynn EA USTCP in Louisiana said:

1120S filed for full year. 2 K-1’s issued, one to deceased for the period 1/1-DOD, 2nd to estate for the rest of the year.

awwwww....

 

[schirallicpa]

3 hours ago, Lynn EA USTCP in Louisiana said:

1120S filed for full year. 2 K-1’s issued, one to deceased for the period 1/1-DOD, 2nd to estate for the rest of the year.

So.......do I need to do 2 bookkeepings?  (is that a word?)  Or just let an allocation roll.

[DANRVAN]

52 minutes ago, schirallicpa said:

So.......do I need to do 2 bookkeepings?  (is that a word?)  Or just let an allocation roll.

There are two options.  The default method is to prorate based on the number of days of ownership.  You can also make a section 1377 election to close the books on date of death and allocate per the actual time period of ownership.

You need to determine which method will result in the least amount of tax.

If the S Corp has assets which will be liquidated (especially real estate) the liquidation of assets and dissolution of the Corp need to be coordinated in the same tax period of the shareholder.  Otherwise you might end up with a gain in one year and loss from stock in the next year.

 

[schirallicpa]

Thank you guys for your help.  

[grandmabee]

I agree,  S-corp is still going, shareholder is who died.

[Abby Normal]

On 6/8/2022 at 9:38 PM, Sara EA said:

The 1120 should be filed with income/expenses until the date of death.  After that, it's a 1041 because the estate is now running the business.  The estate can adopt a fiscal year, which in your case will end June 30 2022 if that helps.

This is wrong. The estate would be the shareholder and simply get a K1 from the 1120S. The corporation was not dissolved.

[WITAXLADY]

similar situation - but a Sch C - not an S Corp..

continues to operate..1 - above - is it a Sch C or a 1041? Because the Sch C is a loss - not required to file? until estate closes?

 

2 -and one of the benes buys equipment so he can inherit that and the other bene gets cash now.. - sounds fishy - legit?

D WI

 

 

 

[DANRVAN]

4 hours ago, WITAXLADY said:

- is it a Sch C or a 1041?

A Schedule C reported on from 1041.

 

4 hours ago, WITAXLADY said:

2 -and one of the benes buys equipment so he can inherit that and the other bene gets cash now.. - sounds fishy - legit?

It is not clear what the situation is.  Need more detail.  Are you referring to the business above?

 

[Abby Normal]

Was taxpayer married or single? If single, then the estate owns the business and it goes on the 1041. And you'll want to file to carryforward the NOLs until they can be used or passed out to the bene's.