Repossession Situation

[geekgirldany]

Client had truck repo. Truck was listed as an asset in an S-Corp. He is the only shareholder. Truck was not in the S-Corp name it was in the Client's name.
Repo truck was sold and client still owed $4,000 on the note. He claimed bankruptcy personally and got this amount wrote off.

Now I am trying to figure out get this truck off the S-Corp. I am thinking it should be listed as sold for what the bank got for it. Is that correct?

Since the amount left owing was written off in bankruptcy the client will more than likely get a 1099C in 2010. So does this mean he will be paying tax twice? Once through the S-Corp and then through a 1099C.

Little tired and hope some of ya'll can help me figure this out. I know the asset being in the client's name has really made this a mess.

[veritas]

I don't think

they are supposed to send a 1099 for debt discharged in bankruptcy. But if they do he can exclude the income personally.

I would use the bank's sales price of the vehicle as the sales price on the corporation.

[Snaggletooth]

Personal Property - Capital Asset

Truck was not in the S-Corp name it was in the Client's name.

Dany, I have the discussion with every corporate owner about his business vehicles. They can't get their insurance company to cover the vehicle at personal rates, so they leave it in their own name. But they think they can pound their fist on the table and bully the tax preparer to carry it on the corporation books. I tell them up front I'm going to treat it as a personal vehicle and THEY (not ME) have to live with whatever happens.

How did it get on the corporate books? If it was paid for with corporate funds, I believe the cost should be treated as a dividend, and depreciation recaptured in similar fashion to a vehicle that becomes "listed" property because usage falls under 50%. Then the disposition of the vehicle would be treated as individual personal property -- whatever rules apply to the repossession apply to him.

If it was NOT paid for with corporate funds, and donated by the shareholder, I would just simply remove the vehicle, reduce the capital balance accordingly, and then recapture depreciation in similar fashion to that described above.

[geekgirldany]

Thank you both for answering. I will give some more thought into both answers.

Snag, I put it on the corporate books. All I can say is I had to learn. I really wasn't taught correctly about how to handle some items in regards to S-Corp returns. When I later became a member of this board and took my enrolled agents exam I learned alot and so things like this are coming up.

As I said I learned and do not include such things on the S-Corp return.

[Snaggletooth]

Which Way

Without regard to who put it on the books, did the corporation pay for it or did the owner contribute it?

[geekgirldany]

S-Corp paid the monthly payment and it was depreciated as though it owned the asset.