Loan from Shareholder to sec 1244 Stock

[TAX]

Client is Scorp. Closed and liquidated business in 2010.

On Scorp P & L Net loss = ($85000)

On Balance Sheet = Loan from Shareholder = $86000
Retained Earnings ($85,000)

Nothing else on BalanceSheet

(1)S Corporation should be able to deduct $85,000 loss on personal Return as it is below basis (His Loan)

(2) Loan from shareholder for $86,000 was from owner to Scorp. Owner can deduct on his personal return as a loss upto $3000 OR

(3) If this amount ($86,000) is transferred to paid in capital account first (and treated as 1244 stock) then it can be fully deducted on personal return.

Does this sound right?

[ChEAr$]

Client is Scorp. Closed and liquidated business in 2010.

On Scorp P & L Net loss = ($85000)

On Balance Sheet = Loan from Shareholder = $86000
Retained Earnings ($85,000)

Nothing else on BalanceSheet

(1)S Corporation should be able to deduct $85,000 loss on personal Return as it is below basis (His Loan)

(2) Loan from shareholder for $86,000 was from owner to Scorp. Owner can deduct on his personal return as a loss upto $3000 OR

(3) If this amount ($86,000) is transferred to paid in capital account first (and treated as 1244 stock) then it can be fully deducted on personal return.

Does this sound right?

Last question first: nope.

With those two items only on balance sheet, it is out of balance. Why? there should also be an entry for capital stock, but even with such an entry, will still be out of balance, a cardinal sin.

You can't just "transfer" a loan into capital account without actual and additional stock being issued, a matter probably for an attorney to handle.

Are you preparing the 1120S? If so, you need more work on it.

[TAX]

Last question first: nope.

With those two items only on balance sheet, it is out of balance. Why? there should also be an entry for capital stock, but even with such an entry, will still be out of balance, a cardinal sin.

Balance sheet is in balance but I provided only few details.

You can't just "transfer" a loan into capital account without actual and additional stock being issued, a matter probably for an attorney to handle.

Are you preparing the 1120S? If so, you need more work on it.

Can owner deduct $3000 as capital loss becuase he is the one who provided loan?

And operating loss should be ok to deduct, on personal return, as it is less than basis,
right?

[JON]

Not following

but once the stockholder takes the loss to the extent of his basis-his basis in the note is reduced by that. Material participation and a bunch of other questions come to minde also. 1244 who paid what for the stock??? Was it only open one year??