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sponsorships to start a business

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    #16
    TheTaxBook, page 18-5.

    Contributions to capital of a corporation made by non-shareholders have a basis of zero to the corporation. The corporation must reduce the basis of any property acquired using the contributed money. If the contributed money was used to buy inventory, the basis of the inventory is zero.

    TheTaxBook, page 8-18, What if the Business Never Starts?

    Costs incurred by a corporation in a failed attempt to start a business are deductible as capital losses when the assets are disposed of. If the basis is reduced to zero because of contributions from non-shareholders, there's no loss. There are different rules for individuals.

    Seems to me the first thing you have to get a handle on is the nature of those payments from all those good people who forked over cash. Why the heck did they write out those checks? Something doesn't add up. What is the missing factor? I can't imagine someone just walking around saying "I want to start an underwear party business. Could you give me a couple grand?"

    Sponsorship? Really? Sounds more like Boss Hogg's daughter wanted to start a business and he went out to "organize some community." There's a reason why these people coughed up so much dough, and that would go a long way toward helping you straighten out this mess.

    I was going to say it's either personal gifts or cash contrinbutions to a corporation's capital. But thinking about it, there could be several other possibilities, none of which would mesh with standard business practices.

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      #17
      i think I will call the daughter and have her and her mother come over together and we can hash this out.

      Thanks for the reference to the tax book. But that is for corporations. Would the same apply to an S corp?

      Linda, EA

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        #18
        Linda, a S-corporation is a corporation, it just has a special tax status.

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          #19
          coming now

          They are coming over right now. Should be here any minute. We shall see what we can find out. I will update you later.

          Linda, EA

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            #20
            Gone! Gone! They are gone!

            I explained that I thought the s corporation should be a zero return and marked as final return. I said I would put the business on a Schedule C. The mother is filing a joint return with her husband. So I made a couple of notes on a sheet of paper and gave my phone number and email address if he had any questions.
            Sent them on their way to see the other preparer.

            I am done with it.

            Linda, EA

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