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C-corp Balance sheet


Max W
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C-corp client hasn't filed 1120 tax returns for several years.  The las filed return has a simple balance sheet with few entries.

However it shows an item(s) were being depreciated, but the depreciation stopped.  In other words, the OY and EOY numbers are the same.

Client inherited business from parent and has no idea what it could be.  The assets being depreciated had a start value of $75K and $50K acc. dep.

The only other asset is cash and the Liabilities are Add'l. piad in Cap $74K  and Retained earnings -$46K.

The question is what, if anything, should be done with this?

 

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  • Max W changed the title to C-corp Balance sheet

Did you get the depreciation schedules from the last return filed?

If not, did you get more than just the last return filed?   Can you see when they stopped taking depreciation expense?

Could be the assets were listed property with a business use limitation on them and the depreciable years are up?

Tom
Longview, TX   

 

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Agree with the others to get back year returns and check those.  Also check the books used to prepare the returns: trial balance may have separate categories for types of assets (autos, furn & fixt, leasehold improvements, etc) and look for details in the general ledger, if you are able to do so.  Tom made a good point about listed assets where this could have been their automobiles. Maybe that's why he/she has no idea.

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4 minutes ago, ILLMAS said:

Can you just elect not to populate the BS if under the threshold?  

Yes, but it does not solve the problem...  Max needs to know if depreciation was properly taken on the assets in the past (to correct if not done) and how much tax depreciation to take on the current and next returns.    Without the detail schedules of the assets you can't be sure you have an accurate return.

Tom
Longview, TX

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If parent was on good terms with the former preparer, perhaps that person would be willing to share the depreciation schedule with the child who inherited the business.

I would provide that data if child could provide documentation that he or she was executor and the new owner of the c corp.

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Thanks for all the suggestions, they have all been tried.  However, I have the client searching for additional returns and information, but so far nothing has come up.  The firm was founded in 2021 and the last return filed was for TY 2012.  

With no additonal info, what would be the best way to proceed?

 

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On 6/10/2022 at 12:47 PM, Lion EA said:

The firm was founded in 2021? So, you're filing their first return on extension? Or, 2021 was filed by someone else and you need to...what?

Ooops! Mistake. Founded in 2001. Last return filed in 2012.

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14 hours ago, Max W said:

Founded in 2001. Last return filed in 2012.

Ouch....This is one that could take up most of your summer and fall.     

Are you sure the corp was operating from 2012 until date of death?  If so, I think you have a bigger issue than the depreciation schedules.   Do you have income statements for all those years?  If not, the books need to be produced (can you get bank statements for the years in question?).

It may be that you can work out a deal with the IRS, but if it is a CA Corp, I don't think you are going to get out of all of the minimum corp franchise fees for all those years, and CA penalties.   If the corp was operating and did not file, there is a big mess to fix.  And the Corp has to be collapsed with the CA SOS to stop the fees from continuing to accumulate.

Good luck my friend.   I hope the kids have the resources to pay for the clean up of the mess their folks left them.

Tom
Longview, TX

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19 hours ago, Lion EA said:

The state may've deactivated the corporation. You're going to need lots more information from that potential client &/or collect a very large deposit toward your hours.

It was suspended years ago.  The client wants to revive the Corp.  This means filig all the missing returns and paying fees and penalties. 

15 hours ago, BulldogTom said:

Ouch....This is one that could take up most of your summer and fall.     

Are you sure the corp was operating from 2012 until date of death?  If so, I think you have a bigger issue than the depreciation schedules.   Do you have income statements for all those years?  If not, the books need to be produced (can you get bank statements for the years in question?).

It may be that you can work out a deal with the IRS, but if it is a CA Corp, I don't think you are going to get out of all of the minimum corp franchise fees for all those years, and CA penalties.   If the corp was operating and did not file, there is a big mess to fix.  And the Corp has to be collapsed with the CA SOS to stop the fees from continuing to accumulate.

Good luck my friend.   I hope the kids have the resources to pay for the clean up of the mess their folks left them.

Tom
Longview, TX

 

Client knows he is  going to have to pay the $800 FTB fee for 9 years. the SOS. bi-yearly penalty of $250 plus P&I and file a Cert. of Revivor.  He's got all of his records from 2013 on and has supplied a P&L. 

On the federal side he shows losses for most years, Because he paid himself a salary, so very little penalty there.

My only concern is too clean up the one item on the balance sheet.   I guess I'll just leave it stand nless he an come up with a dep. stmt from before 2012.

 

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7 hours ago, Max W said:

It was suspended years ago.  The client wants to revive the Corp. 

I would explore letting the old corporation die and forming a new one. Why incur all those penalties for an inactive corporation. This would mean a liquidation of the old corp, so the question becomes, what assets are in the corp?

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5 hours ago, Abby Normal said:

I would explore letting the old corporation die and forming a new one. Why incur all those penalties for an inactive corporation. This would mean a liquidation of the old corp, so the question becomes, what assets are in the corp?

Abby, that was the first thing I suggested to him, to just let it die and start fresh with a new corp name, but he insisted that it was for sentimental reasons as his father had started the business and he wanted to keep the name.  So, then we are back full circle to the initial question of the "ghost' assets.  To liquidate the corp, he would have to file all the back returns, pay the $800 yearly franchise fee to CA plus  P&I.  

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51 minutes ago, Max W said:

Abby, that was the first thing I suggested to him, to just let it die and start fresh with a new corp name, but he insisted that it was for sentimental reasons as his father had started the business and he wanted to keep the name.  So, then we are back full circle to the initial question of the "ghost' assets.  To liquidate the corp, he would have to file all the back returns, pay the $800 yearly franchise fee to CA plus  P&I.  

@Max WCan you create an LLC using the same name?   "Sentimental Corp" becomes "Sentimental LLC"?   Not sure if it would fly, but if there is no one to object it might go through.   Just a thought.   It would save a ton of tax, penalties and tax prep fees for them.

Tom
Longview, TX

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An LLC could be created by either an asset transfer, a stock transfer, or a liquidation.  There is potential gain on the transfer of assets under any of these three methods.

Regardless, you need to determine the basis of stock on DOD based on fmv for the heir(s).

My first question would be what type of business is this?  Secondly, I would request a list of assets and liabilities.

In regards to depreciation,  you can probably safely assume that most any 1245 assets reported on the last return nine years ago have been fully depreciated.  Do they have any records or bank statements for the following years to determine any additional assets purchased?  Is there a manager or key employee that might have some knowledge of such?

Does the company own a building?  If so the cost and date of purchase should  be available from the courthouse.

You mentioned shareholder salary, have payroll taxes and reports been filed?  How about personal tax returns?

Also, you might have estate tax issues to address.

Offhand, I do not see a way around filing a current and past returns, with or without depreciation; the estate attorney might also wish to see copies.

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On 6/10/2022 at 11:04 AM, Max W said:

I have the client searching for additional returns and information, but so far nothing has come up.

That is why I wish there was a mandatory requirement to provide a detailed depreciation schedule with the client's copy of the tax return.

I am currently trying to track one down from an independent preparer that has seemed to have vanished.

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