Margaret CPA in OH Posted January 11, 2008 Report Share Posted January 11, 2008 So I just received an email from a client informing me that he, in December, traded in the company Audi for a Mercedes and registered it in his own name. The Audi was fully depreciated so had zero basis but must have had FMV for a trade-in. I'm thinking that is a capital gain to him. The Audi is a distribution to this S-corp SH, fully depreciated, right? Some time ago I suggested that he do this and get mileage reimbursement from the company for business usage. In the past all auto expenses were charged to the company and I suspect that this guy is somewhat challenged in record keeping. This seemed a better solution. Opinions? Thanks! Quote Link to comment Share on other sites More sharing options...
OldJack Posted January 11, 2008 Report Share Posted January 11, 2008 >>The Audi is a distribution to this S-corp SH, fully depreciated, right?<< Right... but it is a sale of an asset at FMV reported on form 4797 with gain passed to the shareholder on form 1120S-k1 to pay taxes. Books: Debit- Accum Depr $ COST Credit- Property Cost-Vehicle $ COST Debit- Due from Shareholder or Property Distribution account $FMV Credit- Gain on Sale of Assets (income account) $FMV Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted January 11, 2008 Author Report Share Posted January 11, 2008 >>The Audi is a distribution to this S-corp SH, fully depreciated, right?<< Right... but it is a sale of an asset at FMV reported on form 4797 with gain passed to the shareholder on form 1120S-k1 to pay taxes. Books: Debit- Accum Depr $ COST Credit- Property Cost-Vehicle $ COST Debit- Due from Shareholder or Property Distribution account $FMV Credit- Gain on Sale of Assets (income account) $FMV Hmmm, I sort of see this but not completely. If the corp distributed the auto to the shareholder, how can the corp be selling it and reporting it as a corp sale? Or is this just the way these things are reported? It's a first for me. Thanks so much for replying; it's appreciated. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 11, 2008 Report Share Posted January 11, 2008 MONEY OR PROPERTY DISTRIBUTIONS Most distributions are in money, but they may also be in stock or other property. For this purpose, "property" generally does not include stock in the corporation or rights to acquire this stock. However, see DISTRIBUTIONS OF STOCK OR STOCK RIGHTS, later. A corporation generally does not recognize a gain or loss on the distributions covered by the rules in this section. However, see GAIN FROM PROPERTY DISTRIBUTIONS, later. AMOUNT DISTRIBUTED. The amount of a distribution is generally the amount of any money paid to the shareholder plus the fair market value (FMV) of any property transferred to the shareholder. However, this amount is reduced (but not below zero) by the following liabilities. * Any liability of the corporation the shareholder assumes in connection with the distribution. * Any liability to which the property is subject immediately before, and immediately after, the distribution. The FMV of any property distributed to a shareholder becomes the shareholder's basis in that property. GAIN FROM PROPERTY DISTRIBUTIONS. A corporation will recognize a gain on the distribution of property to a shareholder if the FMV of the property is more than its adjusted basis. This is generally the same treatment the corporation would receive if the property were sold. However, for this purpose, the FMV of the property is the greater of the following amounts. * The actual FMV. * The amount of any liabilities the shareholder assumed in connection with the distribution of the property. If the property was depreciable or amortizable, the corporation may have to treat all or part of the gain as ordinary income from depreciation recapture. For more information on depreciation recapture and the sale of business property, see Publication 544. Yes it is treated as sale. Quote Link to comment Share on other sites More sharing options...
OldJack Posted January 12, 2008 Report Share Posted January 12, 2008 >>how can the corp be selling it and reporting it as a corp sale?<< No free lunch and no bargain untaxed distribution of property. If the S-corp wants to give me the auto at zero cost they could get away without reporting a gain. yeah sure.. you know they would do that for a stranger? So if they would not do it for a stranger what makes you think they could get away with doing it for the owner? Quote Link to comment Share on other sites More sharing options...
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