SCorp form 982

[BHoffman]

Have an insolvent SCorp, no chapter 11. Forgiven company credit card debt of around $30k. Final return results in a $6k loss. Am I supposed to put the $6k on line 6 of the 982 form? My software allows it, but it doesn't go anywhere except on the form 982.

If not, should I just check box 1b and fill in the amount of $30k on line 2 in part I, and that's it? Nothing in parts II or III? There is no reduction in basis or anything like that. The instructions for form 982 are pretty sketchy.

Thanks for any advice.

[appelman]

SCorp form 982

I think a lot of software makes 982 a dead-end form. It is left up to you to make any required adjustments elsewhere. On a 1040, I would enter on the line 21 detail two lines:
Debt relief income 30,000
Form 982 -30,000

You could do the equivalent on the 1120S line 5.

[BHoffman]

Thank you, Evan. Do I have to adjust the current year loss of $6k to zero?

It's line 6 on form 982 part II that is confusing me.

[SFBOB]

Confirm Credit Card Owner

It would not surprise me that the President may be the owner and that the 1099C should be handled on his or her tax return.If you have not seen the details on the credit card account I would check them out.Most small S and C Corporation loans and advances require the officers guarantee.You will also need to know that the signer has basis in the Corporation.
Form 982 is used to adjust the basis in stead of reporting the cancelled debt as income. If you do not have Pub 4681: I would download it from IRS.Gov. It deals with your example. Good luck Bob PS The trouble with this work is that the client normally does not have the money to pay you for the extra time to research and study.

[appelman]

Good point on the credit card owner

Good point on the credit card owner. If the card really does belong to the corporation, I don't think the NOL provision will apply, at least for the federal return, since as a pass-through entity the S-Corp can't really have an NOL -- it passes its losses to the shareholders. This may not be true on state returns for states (such as California) that don't treat an S-corp as a purely pass-through entity. In such cases, you may have to deal with the NOL adjustment resulting from exclusion of debt-relief income.

[BHoffman]

Still stumped

Pub 4681 was very helpful!

OK - broke down and called Old Boss. He said he would file the final 1120S, use form 982, and deal with any 1099-C forms that might be received for 2010 tax year if or when that happens.

[SFBOB]

Pub 4681 Great Educational Tool on 1099A&1099C

Your original question did not state that you had not received a 1099C. I agree, wait for the document before making an entry on the tax return.I have spent over 30 hours studing forecloseures. My concern is that I see postings that say IRS has made large refunds. The question in my mind is my the IRS would make these refunds when most of the taxpayers really had no economic loss.

Example of Economic Loss

Taxpayer buys residential rental for $300,000 cash at the top of the market price.
2009 the market drops to $100,000 because 90% the other 100 houses in the subdivision were foreclosed upon. Most buyers had purchased for no money down when Barney Frank and Chris Dodd were running the FHA and watching over the Banks.[Sorry I had to get that in]

The Taxpayer that purchased for $300,000 cash sold for $100,000. He certainly had a $200,000 economic loss, AGREED!!! Most of the houses in the subdivision were vacant and being stripped of plumbing and appliances.

How can the IRS grant a large refund to the taxpayer that walked away from a loan, when the only payments were applied to the interest? The only loss this taxpayer had was the interest. He may also have refinanced and taken another $50.000 for a cruise and trip to Vegas.

What are your thoughts. I am way off base, or do I have a point? Have a good day. Bob

[appelman]

Follow the worksheets

Follow the worksheets in Pubs 4681 and 544 to determine the gain or loss. If it is a non-recourse loan, the "sales price" must be at least equal to the loan balance. If it is a recourse loan, there may be a capital loss (non-deductible on a residence), but there will also be debt relief income. A careful reading of the instructions to Form 982 is also rewarding.

[SFBOB]

1099A Causes Refunds

The 1099A without the 1099C issued in the same tax year is the main reason for the refunds without economic substance. Example; Abandonment results in a sale. Sales price is the FMV on date the 1099A is issued. Basis is the purchase cost, less depreciation and additions for improvements. These transactions normally result in an ordinary loss[not a capital loss]. If the 1099C had been issued in the same year the cancelled debt income would have offset the loss. Additional factors are the larger cancelled debt amount will be greater than the original purchase loan due to refinancing for added cash, not used for improvements.This will cause taxable income in excess of the loss.What a headache,right?

[JON]

982 use in corporate???

You can close the corporation down. It may cause income to the stockholders. When the debt was put on the books assets or deductions were taken. Now you are closing down the corporation there is no such thing as an exclusion of business debts within a corporation you record the cancellation or forgiveness as income for the corpration.

If the corp is cash basis and in it is non booked accounts payable, once forgiven that is income and you record the expense incurred. When you close out a corp I do not believe you get any outs - but you have to record all items as to what the corp received for the proceeds. Timing is important because if the stockholders got the benefit of some expenses in previous years because of debts that are currently forgiven they have income on those items.

[BHoffman]

This is an SCorp and no 1099-C forms were received. The debt is all credit card debt. The SCorp is cash basis, and the deductions were taken in prior years.

The SCorp is insolvent and this is a final return. The credit cards were issued in the name of the SCorp. The credit card companies have sent the accounts to collection agencies. The shareholder ignores their requests for payment and intends to default entirely. He is in the process of filing for personal bankruptcy, and may file for corporate bankruptcy upon the advice of his attorney.

I have read all instructions and all pubs and all IRCs I can find. I've filled out form 982. The COD income and the cancellation of it due to insolvency is not reported anywhere else on the return or the K-1.

I'm still feeling pretty insecure about how to report this and appreciate any input.

[SFBOB]

No 1099C No Cancelled Debt Right?

If this were an individual the the return filing would continue until death of the taxpayer. My guess is to file the final 1120S return and amend later when and if a 1099C is issued.I have never dissolved a corporation, however I know many steps are required. One for sure is to obtain a release that all payroll taxes withheld have been paid.Contact the state where incorporated and get the instructions on how to dissolve a corporation.

[BHoffman]

Hi Bob and thanks for your reply.

The Corp is already dissolved. No payroll or sales taxes are due.

[Maribeth]

Have an insolvent SCorp, no chapter 11. Forgiven company credit card debt of around $30k. Final return results in a $6k loss. Am I supposed to put the $6k on line 6 of the 982 form? My software allows it, but it doesn't go anywhere except on the form 982.

If not, should I just check box 1b and fill in the amount of $30k on line 2 in part I, and that's it? Nothing in parts II or III? There is no reduction in basis or anything like that. The instructions for form 982 are pretty sketchy.

Thanks for any advice.

You are preparing the final books of an insolvent Scorp. There is a credit card payable of $30,000 on the books. That debt is not going to be paid by the corporation and is not going to be paid by the shareholder. The debt is not part of any distribution to the shareholder upon liquidation.

Dealing strictly with the books and the final journal entries, should not your entry be a debit to the credit card payable account and a credit to the related expense accounts. At that point, the Scorp has income in its final year of $24,000.

Maribeth

[BHoffman]

Thank you, Maribeth.

Yes, it will result in income on the books to zero out the balance sheet.