Need advice on final 1120S

[thomtax]

I have/had a client with a S-corp. He had cancer, so was in the process of trying to get everything finished up last year. It was closed out with the state and all that needs to be done is the final return. He then died about July. His wife knew absolutely nothing about what he was doing, so I am piecing together the info.

The only expenses were paid - there is no inventory. It has losses over what was put into the company. He was loaning the company money to keep it going. There is a year left on some computers and amounts left on amortization.

What advice can any of you S corp gurus give me on what to look out for? It will be appreciated.

LT

[ChEAr$]

If this had happened here, (and I died; perish the thought!), whoever inherited my stock, actually my wife, would be in charge of winding things up and making sure final return is filed.

Remember, the corporate return dates are 1/1 - (date wound up with state), a short fiscal year.

Assets are distributed at FMV. The fact that a computer had more years to go for depreciation is immaterial.

You've a lot of reading up to do, I think.
Be sure you have copy of the state dissolution in your files, also.

Actually the signer of the return would be the executor of the estate, or personal rep appointed by court. That of course is why I referenced my wife to take care of my S corp.

As a side note, my wife is named POD on my personal bank account, so she'll be able to get the money with with to bury me, but she won't be able to touch the corporate account until my estate is probated and she is appointed to liquidate the corporation.

If your client is in similar situation, be sure also you have copy of the court appointment of the executor, whoever it may be.

[thomtax]

Thanks - There is not a problem with her signing things since technically, she is president/shareholder of the corp. I don't know why set up that way, but she is and is shareholder/owner. He dissolved with the state just before his death and I have copies. I may have a problem with it being a short year though - will have to check that out.

I mentioned about the depreciation remaining to make the point that there was some book value left in them - not much, but a little. I may have put more into the post than necessary, but was trying to cover everything in case it made a difference in your thinking. And as to FMV, on computers this old, it is practically zero. The amortization was more of a puzzle to me. Although there is still value on the books, it is worth nothing at this time, since the business no longer exists. It was for software work done at the setup and was handled the way a research group recommended.

Side note - very little income, ever just dreams and hopes. It was going to be closed out in 2009 anyway.

LT

[Maribeth]

Record any 2009 income and expenses just as if the corporation was a going concern. Make sure that you have everything entered revenue/expense-wise. Do not make any depreciation or amorization entries yet.

Then look at your balance sheet. What assets are left on the balance sheet? A little cash? Some computer equipment? Some unamoritzed software expense? Anything else?

Determine the FMV of the computer equipment. I agree with you, probably zero. If so, show the computer equipment as being sold at the end of the tax year, with a zero SP. (In effect the computer was junked). You will have a little loss flow through to the 4797.

The software -- FMV probably zero, do the same thing on the software.

Now look at your balance sheet. What else is left? Shareholder loans and equity. Reduce the shareholder loan by any amount of cash on the books.

At this point, you can prepare the return. There will be loss on the return and that will flow out on the K-1.

If you do the shareholder's return, then you will have to determine at the SHAREHOLDER level what the basis in the stock is and how much of a capital loss the shareholder has incurred in closing up the business.

hth,

Maribeth

[thomtax]

Thanks MaryBeth,

This is what I had originally decided to do, but since I very seldom close out 1120S (Some people want to hold onto them just for old times sake) I began to question myself. And I am the type that will allow you to think I am dumb and ask questions. I remember in a college class one time, the instructor said "I knew if anyone was going to ask for an explanation of this, it would be you". She wasn't being ugly, just commenting, and then gave me the assignment to research it.

Thanks again.

LT

[Maribeth]

LT,

I believe that the way we learn is by asking "dumb" questions and learning from mistakes that we have made. I used to teach Accounting 101 at the JC as an adjunct professor when I was first starting out and needed ways to build up my practice. One of the first things I would tell my students was that I wanted them to ask questions, even if they thought they were dumb questions, because someone else would be sitting in the classroom thinking about the same question but being too scared to ask it.

You are the courageous one for asking the questions!

Maribeth