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Discussion:Closing C-Corp with Debt

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Discussion Forum Index --> Advanced Tax Questions --> Closing C-Corp with Debt


Discussion Forum Index --> Tax Questions --> Closing C-Corp with Debt

Paracct (talk|edits) said:

12 March 2014
C-Corp client is terminating the business. C-Corp has carryover losses, but the C-Corp has debt to the sole shareholder of the corp. in excess of the carryover loss. Can the C-Corp forgive the debt up to the carryover loss amount and convert the rest of the debt to equity before the final tax return is filed? My concern is what to do with the "extra debt" and tax consequences of that.

Ckenefick (talk|edits) said:

12 March 2014
Just flip it over to Equity and be done with it. Guy can take a bad debt deduction on his 1040. Too bad it wasn't equity from the get go, then he might have a 1244 loss.

Paracct (talk|edits) said:

13 March 2014
Would the equity by additional paid in capital?

Paracct (talk|edits) said:

13 March 2014
Would the equity be just additional paid in capital? There is no exchange of stock.

Ckenefick (talk|edits) said:

13 March 2014
Yeah, but it wouldn't really matter seeing that the ending balance sheet will be all zeros.

Paracct (talk|edits) said:

13 March 2014
So the shareholder can contribute to APIC without any stock transaction?

Ckenefick (talk|edits) said:

13 March 2014
Of course you can. The fiction is that the shareholder contributed cash, and received no stock in exchange, after all, what's the point in taking stock back if he owns 100%. And then, the fiction is that the corporation, with said deemed cash, repaid the shareholder. The result is that the debt goes away and equity increases by a like amount.

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