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Discussion:Section 108 (a) (1) with BK

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Discussion Forum Index --> Advanced Tax Questions --> Section 108 (a) (1) with BK


Discussion Forum Index --> Tax Questions --> Section 108 (a) (1) with BK

Jeff-Ohio (talk|edits) said:

18 March 2014
100% Shareholder files PERSONAL bankruptcy.

SH has two LOC ($300K) on the S-Corps books which he stopped paying on.

SH is insolvent.

I understand that 1099s (1099C in this case) are typically not issued to Corps.

But if they were, how would they be reported or do they need reported?

Sec. 108(a)(1) allows for exclusion of COD income from gross income where the debt discharge.

Reason is, we are looking to close the business down with the 2013 return, but I don't want to reopen it if 1099s are issued in 2014.

Ty in advance

Ckenefick (talk|edits) said:

18 March 2014
SH has two LOC ($300K) on the S-Corps books

Just to clarify, what does this mean?

Jeff-Ohio (talk|edits) said:

18 March 2014
The S-Corp has a $80,000 line of credit with Bank A and a $120,000 line of credit with Bank B.

SH is the Guarantor of both.

Ckenefick (talk|edits) said:

18 March 2014
How does that add up to $300k?

Jeff-Ohio (talk|edits) said:

18 March 2014
Because I'm still in a fog after yesterday. My apologies.

$200K

Ckenefick (talk|edits) said:

18 March 2014
But if they were, how would they be reported or do they need reported?

Are you taking the position that the indebtedness has been forgiven, as to the borrower, the S-corporation?

Jeff-Ohio (talk|edits) said:

18 March 2014
Yes, that is the position I am taking.

S-corp stopped paying on the lines

Ckenefick (talk|edits) said:

18 March 2014
Ok, you can take that position, but you really don't know if the debt has forgiven as to the S...Nonetheless, if you're going to treat the debts as forgiven:

You'd test the COD at the S-level for taxability/excludibility. If excludible, for insolvency, for example, you'd exclude it and would attach the 982 to the 1120S. As such, the COD wouldn't pass through. I don't think the bankruptcy exception would apply to the S-corp itself pursuant to 108(d)(2). And note that you have the issue of "Who gets the K1?" - the shareholder or the shareholder's bankruptcy estate, yet you haven't told us what type of Bankruptcy Case the shareholder filed...

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