Discussion:Distributions of an S Corp in excess of AAA and stock basis
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Discussion Forum Index --> Advanced Tax Questions --> Distributions of an S Corp in excess of AAA and stock basis
Discussion Forum Index --> Tax Questions --> Distributions of an S Corp in excess of AAA and stock basis
| 4 July 2009 | |
| Bottom line - I know I need to follow Sec 1368 "If the amount of the distribution exceeds the adjusted basis of the stock, such excess shall be treated as gain from the sale or exchange of property." but I don't know how to actually report it. Where on the K-1 (or other form) should it go? | |
| 4 July 2009 | |
| On the balance sheet as "loan to shareholder"
Just kidding, sort of. The taxability of Scorp distributions is determined at the shareholder level so nothing goes on the Scorp return except for recording the distribution. The income is reported on the shareholders scedule D. | |
| July 4, 2009 | |
| Or, if there is reason to believe that it can/will be repaid either will real cash or from profits...Loan to S/H. | |
| 4 July 2009 | |
| A little more background. There were 2 shareholders. One left and he was "given" his work truck (property distribution). I don't think he knows that this was a taxable event and I don't do his tax return. Is there any form (1099) that I can send to make him aware that getting the truck is a taxable event? I would think maybe a 1099-B since he "sold" his stock in the company, except that the plot thickens. No one ever "purchased" the stock. There is a big fat $0 on the line that says capital stock on the balance sheet. The entire business was run (financed) with credit cards guarenteed by my client (so he has basis). I just want to make sure I make the other ex-owner is aware that getting his truck from the company is taxable to him. Any ideas? | |
| July 4, 2009 | |
| Well, first off, you have the sale of the truck to book, at fmv, recognize gain if more than adjusted basis, and charge that against his s/h loan. Or distributions. Now, to the extent that this is more than his basis in the corp, usually a notation on the K1 will do the job in the other info section, and hope that he has a paid preparer who notices it. (Basis would include any profit for the year, of course, and gain on the truck to the corp.) | |
| 4 July 2009 | |
| What code would you use on the K-1? Box 20 X?
He had $12,000 of distributions last year that were in excess of his basis. This excess was not noted on his K-1 anywhere and I seriously doubt that he included it in his income. | |
| 4 July 2009 | |
| Duh. I was looking at the partnership K-1 when I said Box 20 X, not the Corp K-1. | |
| 4 July 2009 | |
| How are you creating basis with the credit card guarantee? I don't agree with it but I thought the courts said no basis from CCs even if the owner/shareholder is ultimately responsible. | |
| July 4, 2009 | |
| I assumed that what was meant is that the cards are actually in the S/H's name. If not, you're right, that does not create basis. | |
| 4 July 2009 | |
| Yes, the cards are in the name of the Shareholder, not the corporation | |
| 5 July 2009 | |
| Duplicate question moved over to the other topic Frank started: Discussion:S corp loss in excess of basis "suspended" | |
| 5 July 2009 | |
| I would like to be wrong about this. I thought a credit card in an owner's name where all charges were recorded as a corporate liability and paid by the corporation did not create basis.
If the owner treated business related credit card charges as loans to the corporation or capital contributions, it would create basis. CC payments by the corporation would reduce the loan or capital. Finance charges would be a personal matter. | |
| 5 July 2009 | |
| If you don't do the shareholder's return how can you be sure of what his basis is? | |
| 5 July 2009 | |
| I do the corporate return. Last year they distributed twice as much as they earned and no one ever put any money into the corporation. They had no basis to start with and distributed more then what they earned. I don't need to know exactly what his basis his to know that the distributions have exceeded it. | |
| 5 July 2009 | |
| Jimi - For tax purposes I will report the credit card liability as loans from shareholder on the balance sheet. For book purposes, I will continue to account for them as credit cards to make it easier to reconcile the balances. | |
| July 5, 2009 | |
| When the cc is the s/h's, it's just as Letto describes: it's the s/h's debt. Quite different from a guarantee, which is not the s/h's unless the original debtholder defaults. | |
| 5 July 2009 | |
| Thanks Letto. What do you do with the CC finance charges; corp expense, s/h income and s/h 1040 investment interest? | |
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