Closed Corporation deduction(s)

[rkhan71]

Hello, folks,

Not seeing any information (TheTaxBook, etc.) on expenses incurred for start-up and / or trying to be in business for a corporation (C) that never really got off the ground and closed. Any pubs or codes, etc. that I can refer to that can be used for reference? Started at end of 2012 / 2013 and closed towards 3rd quarter 2013. Wondering if the expenses in total are deducible in year of closure as part of sale of assets or something? Maybe a form 4797 or...? Or can only be used if sold? Main thing is what costs can be written off, if any for no income, non-opened business, only costs?

Thanks for help in advance.

Ray

PS: Happy New Year!

[JohnH]

It probably doesn't matter which year the costs are recorded. Whatever loss you record in 2012 must be carried forward to 2013 anyhow.

[ATSMAN]

If the business had never got off the ground then this may have helped. I have used this method for a client who was looking to start her own business, had some initial expenditures, was ready to go, but her husband talked her out of it at the very last moment.

Schedule A of Form 1040 as miscellaneous expenses

[DMICPA]

Stock loss

Wouldn't the shareholder have a loss on the stock when the C-Corp. closed. If the shareholder bought the stock, the investment would be worthless when the Company folded.

This would be a schedule D transaction I would think.

[JohnH]

You're right, and I'm guessing the capital loss deduction on the personal Schedule D will be roughly equal to the amount of the accumulated net losses on the 1120 (unless there is borrowed money involved, which complicates matters a bit).

[ATSMAN]

Value of the business

To do a stock loss on Sch D you would need to know the value of the stock of the C corp. Since this is a non public C corp. that really never got off the ground, good luck figuring that out. You are talking about hiring a professional appraiser and the cost of that may not even justify that expense.

I don't think we can simply equate what the owner invested in the business as the value of his stock.

[DMICPA]

Stock loss

The value of the stock is zero. The Company is worthless.


If you buy stock or put funds into a Company, that is your basis.

Since this is a C-Corp. The amount you pay to capitalize the Company is your basis.

If the stock becomes worthless as the Company is defunct, it is a total loss of your investment.

If you purchased stock AND also loaned money to the Company that was not considered additional paid in capital, that too would be a deduction.

[JohnH]

To do a stock loss on Sch D you would need to know the value of the stock of the C corp. Since this is a non public C corp. that really never got off the ground, good luck figuring that out. You are talking about hiring a professional appraiser and the cost of that may not even justify that expense.

I don't think we can simply equate what the owner invested in the business as the value of his stock.

Yes you can.
It's fairly simple - see DMICPA's response.
An appraiser would be a waste of money - no ethical appraiser would even take on the job.

When the business closes, the value of the stock is zero.
When it was operating, the value of the stock was the owner's initial investment.
In that sense, it is no different than if the person had invested in Enron or GM.

[ATSMAN]

I see your point, but I had a different experience with one of my client that was a shareholder in a closed corporation that folded for good. I did his personal return only and was told by the accountant who handled the corporate return that they had to hire an appraiser to value the basis and it was not simply what my client had invested.

Perhaps it is moot in this situation where the corporation never really got off the ground.

I would not attempt to figure out basis without an official appraisal.

[JON]

Corp formed and then liquidated

hopefully calls for 1244 stock trreatment-ordinary lose on all that the stockholders put in - and did not get back.

If expenses were paid by individuals, not the corporation, you get no deduction for individual expenses spent to investigate investments.

[JohnH]

I see your point, but I had a different experience with one of my client that was a shareholder in a closed corporation that folded for good. I did his personal return only and was told by the accountant who handled the corporate return that they had to hire an appraiser to value the basis and it was not simply what my client had invested.

Perhaps it is moot in this situation where the corporation never really got off the ground.

I would not attempt to figure out basis without an official appraisal.

Interesting, but I don't see how the cost basis in a C corp can be anything other than what the client invested. Now it would be different if this were an S corp, or ther might be complications if the shareholder had contributed property other than cash in exchange for shares, or if there were shareholder loans to the corp. But even in those cases, the shareholder's cost basis in the shares would still be their original investment.

I suppose in that rare case in which there's a liquidating dividend there would be an adjustment to basis, but other than that I can't envision any other type of scenario. Maybe your situation involved a liquidating dividend.

[rkhan71]

Thanks.

Thanks for the ideas; it is really appreciated. This might be an S Corp possibly (was not sure about C); I will have to check further. I am also going to find out about the funding of the corporation and whether should go on A, D, or 1244 type or... Will have to see what the sole shareholder did with monies, property, equipment or ... and the associated events. But you folks gave me some good ideas. Sometimes your brain gets stuck in first gear. Always appreciated.

Ray