Discussion:S Corp Basis
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Discussion Forum Index --> Tax Questions --> S Corp Basis
9 January 2006 | |
| In determining basis for a shareholder in a S Corp., do you add the liabilities such as Credit Card payables and 'line of credit' from a bank? S Corp is on the Cash basis for tax reporing and the credit cards are payables on the Balance Sheet. | |
| 10 January 2006 | |
| Riley2, I think you are correct as this is the way I see the answer with my research. Is there a way a shareholder can overcome the excess withdrawals over basis? Would the tax be capital gain or ordinary income for the excess over basis? Help. | |
| 18 January 2006 | |
| Suggest having the shareholder borrow the money for the corporation's working capital needs. The interest would be deductible on page 2 of the shareholder's Sch E, and the tranfer of working capital to the corporations would be treated as basis.
Any distributions in excess of basis would trigger a capital gain. | |
| 28 December 2007 | |
| I'm a bit confused. I read an article in the CPA Journal discussing IRC section 465 (at-risk limitation). The article states that An owner's at-risk amount is increased by "the owner's share of amounts borrowed for use in the business that are qualified nonrecourse financing".
I've always been under the impression that the shareholder had to loan the money directly to the S Corp to get basis. Does the shareholder of an S Corp that has a mortgage collateralized by the building it owns, get basis for the mortgage amount? | |
TheTinCook (talk|edits) said: | 28 December 2007 |
| You are confusing basis and the at-risk limitation. The shareholder would not get basis for the S-Corp's mortgage. | |
| December 28, 2007 | |
| And the building shouldn't be in the corp in the first place. I would also generally disagree about credit cards. Assuming that they're in the owner's name and used by the corp, which is pretty typical, they'd constitute basis. | |
| 31 December 2007 | |
| JR - I see personal credit cards used all the time for business expenses. If purchases and interest are recorded as business expenses, how do you typically show the credit side on the Balance Sheet? As Credit Card Payable or APIC? If the payments to the credit card company are paid from the business checking account, how do you account for them? | |
| December 31, 2007 | |
| Go ahead and account for them as Credit Card accounts in QuickBooks, but show it as Stockholder Loan on the Schedule L. | |
| 18 June 2010 | |
| I agree w/basis handling on this discussion, but not the credit card handling, that is on the cash basis counting the expense. Isn't a debit to expense and credit to payable the accrual method? Years ago IRS Pubs and tax literature used to distinguish between bank cards and T&E cards. Somehow that doesn't happen anymore and IRS pubs say when it's on the credit card. Kind of like saying it's a bank loan. What do you think of counting bankcard
expenses to the extent of cash/bank balance available for bankcards (not T&E cards)? | |
| June 19, 2010 | |
| Rev. rul. 78-38, 78-39. If the IRS said anything inconsistent with them, I hope it wasn't in the past 32 years. | |
RoyDaleOne (talk|edits) said: | 19 June 2010 |
| Credit cards are loans, debt (think third party) not accounts payable delayed payable to vendor (think direct party). | |
FloridaCPA (talk|edits) said: | 7 September 2010 |
| This is a new one for me...client bought land and shell of warehouse, individually (deed in his & wife's name) but bank required the S Corp to be borrower on mortgage (client did not have to guarantee it). Closing statement on the purchase shows S Corp as borrower, signed by the S Corp president (my client & 100% owner) and S Corp vice president (unrelated party)....
client pays mortgage interest & real estate taxes personally (b/c there is not sufficient cash flow in S Corp yet). So...who has basis? Who should deduct the mtg int & real estate taxes? The plan is to have the S Corp rent the property from him @ reasonable rent.
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CathysTaxes (talk|edits) said: | 7 September 2010 |
| Florida, I would make sure the SCorp has a resolution in place on how to handle loans from shareholders and then have the shareholder loan the scorp the money for the mortgage and real estate taxes. This would increase his basis.
IMO, property should be 'deeded' to the scorp I don't believe you can deduct property taxes and interest that you've paid for someone else's loan. Here I thought I had the PITA scorp clients. | |
| September 7, 2010 | |
| "...IMO, property should be 'deeded' to the scorp"
Doesn't this violate JR's rule of never, never, ever, no way, put real estate in a corporation? | |
FloridaCPA (talk|edits) said: | 7 September 2010 |
| Thanks Cathy, thanks Belle...
Yeah...Cathy...guess there are enuf PITA clients to go around.... Even tho the shareholder is not the primary borrower....he IS at risk (saying this losely here) of losing the property if the S Corp doesn't pay the mtg...since his property collateralizes the mtg. I would think, he could deduct the interest exp and not the S Corp, especially since he paid it and it is his property....wierd tho...definitely let him deduct the real estate tax as owner of the property... I dont think anyone wants the real estate in the S Corp (no assets in the corp in case of liability exposure which is high given the type of business the S Corp is in). I guess the transaction should be construed as the S Corp borrowing $$ from the bank and loaning it to the Shareholder who then bought the property which now secures the original mortgage. Maybe the S corp has investment interest income (fr the shareholder) to offset the investment interest exp, leaving net investment income of -0- to the S Corp....Shareholder now has rental interest expense (pd to the S Corp). I suppose the S Corp should book a notes receivable from the Shareholder to balance the mortgage payable. A bit messy but I guess it doesnot affect his basis in the S Corp. I would like to ignore all of that and treat it like he borrowed the $$ (mortgage) from the bank to buy the property that he rents back to the S Corp b/c that is the essence of the transaction. | |
Harry Boscoe (talk|edits) said: | 7 September 2010 |
| I'm struggling quite a bit to accept that the bank actually let this happen the way it's described. | |
FloridaCPA (talk|edits) said: | 7 September 2010 |
| IKR!! It doesnt make a bit of sense to me either and I wouldnt have believed it if I hadnt seen the paperwork. sigh! what will the banks come up with next? | |
FloridaCPA (talk|edits) said: | 8 September 2010 |
| After listening to what the client said and staring at the closing stmt in unbelief, I took the liberty of going to the county tax assessors website to check the ownership....and it is owned by the 100% shareholder & wife. The loan is signed by the pres (also 100% shareholder) and the VP (unrelated)....and no one guarantees the mortgage....and it was done with a big well known national bank... Maybe they've come up with a new product that we dont know about yet. | |
CathysTaxes (talk|edits) said: | 8 September 2010 |
| "...IMO, property should be 'deeded' to the scorp"
Doesn't this violate JR's rule of never, never, ever, no way, put real estate in a corporation? Yes, it does Belle, I'm surprised the bank wanted the mortgage in the scorp's name. | |
| 8 September 2010 | |
| I would think the only way the bank would want this to happen is if the SCorp had the assets to secure the mortgage and the individual had very bad credit or a bankruptcy. I did see that the corp wasn't making any money so I don't know how this could really be the case either. Something seems wrong here somewhere. | |
FloridaCPA (talk|edits) said: | 8 September 2010 |
| I dont know abt his credit...he hasnt been thru bankruptcy....the corp has no assets of its own....
Would you go with substance over form and ignore the S Corp? That is what I am leaning to...it would certainly be the easiest...especially since 9/15 is creeping up on us. Avoiding usury & CP laws? that could explain it...(out of my league here)... | |
FloridaCPA (talk|edits) said: | 8 September 2010 |
| From a legal point of view...in the event of default..the most the bank could foreclose on only his share since it is held by h/w...just doesnt pass the sniff test - does it. | |
| September 8, 2010 | |
| Just a thought - can you ask the lender why such an unusual approach was used? | |
Death&Taxes (talk|edits) said: | 8 September 2010 |
| I think LH2004 has the answer; I have seen this in New Jersey. | |
FloridaCPA (talk|edits) said: | 8 September 2010 |
| so....would you all ignore the S Corp for this? | |
