Getting rid of discharged debt from book

[TAX]

Bankruptcy discharged debt for a scorp: $149,514. NO 1099-C will be issued.

(Entry: Dr Various debts that court discharged

Cr.Bankruptcy discharge holding) - Liability Account


Current Loan from Shareholder: $85,561

Current Retained Earning: $(147662)

How to get rid of discharged debts from book:

(A) Transfer to RE and thus reduces RE. Keeps basis of shareholder intact

(B) Transfer to Shareholder loan but does not make sense as that will increase Loan basis and shareholder did not contribute to get rid of these debts.
This treatment helps from loss deduction point of view.

Any input will be appreciated.

[TAX]

Any Input please

Thank you for your help.

[taxxcpa]

Discharge of debt

Bankruptcy discharged debt for a scorp: $149,514. NO 1099-C will be issued.

(Entry: Dr Various debts that court discharged

Cr.Bankruptcy discharge holding) - Liability Account


Current Loan from Shareholder: $85,561

Current Retained Earning: $(147662)

How to get rid of discharged debts from book:

(A) Transfer to RE and thus reduces RE. Keeps basis of shareholder intact

(B) Transfer to Shareholder loan but does not make sense as that will increase Loan basis and shareholder did not contribute to get rid of these debts.
This treatment helps from loss deduction point of view.

Any input will be appreciated.

Without seeing the books, it is difficult to say what you would credit. You would debit the debts that were discharged. It might be offset by crediting and reducing the book value of the assets acquired by the debt, assuming the assets were on the books. However there might also be a need to adjust accumulated depreciation and the depreciation expense taken in the past as well as in the current year.

You could credit it to retained earnings which would leave the depreciable assets on the books which would lead to writing off expenses not incurred when depreciation is charged. Of course, you can depreciate one way on the books and another way on the tax return.
.

[JON]

No one

wants to agree with me. If the S Corp passed out losses because of the debt there can be income. You can have some debts to reduce assets. If you have a bunch of suspended losses because of basis they would have to be zeroed out. I can not believe that if any tax loss was passed out because of the debt that it would not cause income if debt was cancelled. Tax attributes are zeroed, and assets pledged may be reduced to adjusted book basis. Mortgages I believe are reduction of pledge proerty without an election. I believe anything else is reduced by election. I could not convince others on this a couple of months ago.