S Corp Carryforward Losses

[Auto]

When an S Corp liquidates, can the previous years losses carried forward due to lack of basis be taken on the 1040?

[kathyc2]

When an S Corp liquidates, can the previous years losses carried forward due to lack of basis be taken on the 1040?

Only if something during the liquidation increased basis.

[Auto]

Only if something during the liquidation increased basis.

They put in capital in 2014 bringing their stock basis back to near nothing but not negative.

[kathyc2]

They put in capital in 2014 bringing their stock basis back to near nothing but not negative.

It would be what their basis was for 2015. If it's a single shareholder I can't see where they wouldn't have sufficient basis to cover past losses unless they defaulted on liabilities. If there are several shareholders some may have basis to cover past losses and others may not.

Do you prepare the 1120S or only the 1040 for shareholder?

[Auto]

It would be what their basis was for 2015. If it's a single shareholder I can't see where they wouldn't have sufficient basis to cover past losses unless they defaulted on liabilities. If there are several shareholders some may have basis to cover past losses and others may not.

Do you prepare the 1120S or only the 1040 for shareholder?

Unfortunately, I prepare both and am always in a world of confusion once these S Corps start taking huge distributions bringing RE into the negative. They had a company loan (none shareholder) and then they personally paid that loan off. Plus they paid company expenses out of their own pocket, also contributing to their capital. The amount of the company loan they personally paid off and the company expenses they paid personally was in an amount a little higher than their negative RE. did I miss the boat last year not taking their previous year carry forward losses?

[kathyc2]

Unfortunately, I prepare both and am always in a world of confusion once these S Corps start taking huge distributions bringing RE into the negative. They had a company loan (none shareholder) and then they personally paid that loan off. Plus they paid company expenses out of their own pocket, also contributing to their capital. The amount of the company loan they personally paid off and the company expenses they paid personally was in an amount a little higher than their negative RE. did I miss the boat last year not taking their previous year carry forward losses?

You just said several things there that affect basis.

1) If they paid off the business loan, the entry should have been to debit Loan and credit Due to Shareholder. This gives them debt basis.
2) If they personally paid business expenses how was it booked? If the debit was to the expense what was the credit?
3) If the reason for negative RE is due to a distribution over RE rather than from a loss, then the excess amount should have been taxable income to them in the year(s) it happened and they would have a different outside basis than what shows on the corporate books.


Work through the accounting entries to close out the balance sheet accounts. When you say "they" I assume you are talking amount a H/W who are the only shareholders? If that's true I can't think of a way they would not have sufficient basis to claim all losses unless they defaulted on liabilities.

[Auto]

You just said several things there that affect basis.

1) If they paid off the business loan, the entry should have been to debit Loan and credit Due to Shareholder. This gives them debt basis.
2) If they personally paid business expenses how was it booked? If the debit was to the expense what was the credit?
3) If the reason for negative RE is due to a distribution over RE rather than from a loss, then the excess amount should have been taxable income to them in the year(s) it happened and they would have a different outside basis than what shows on the corporate books.


Work through the accounting entries to close out the balance sheet accounts. When you say "they" I assume you are talking amount a H/W who are the only shareholders? If that's true I can't think of a way they would not have sufficient basis to claim all losses unless they defaulted on liabilities.

Of course they are H/W shareholders with terrible accounting records. But the answers to your questions is yes, when they took distributions in excess of RE I claimed that as Distributions in Excess of Capital. the expenses paid personally by them went into Added Paid in Capital, as did the loan they paid off. So I am thinking that when they paid that loan and made those expense payments personally, that is when I should have claimed their previous years carry forward losses on their personal return. Am I right? I'm thinking I may be looking at an amendment here due to my error.

[kathyc2]

Of course they are H/W shareholders with terrible accounting records. But the answers to your questions is yes, when they took distributions in excess of RE I claimed that as Distributions in Excess of Capital. the expenses paid personally by them went into Added Paid in Capital, as did the loan they paid off. So I am thinking that when they paid that loan and made those expense payments personally, that is when I should have claimed their previous years carry forward losses on their personal return. Am I right? I'm thinking I may be looking at an amendment here due to my error.

It depends. If they had a loss in 14 you could have used the additional basis to claim the 14 loss but not the carryover losses. Carryover losses stay until used against profits or disposed of.

[Auto]

It depends. If they had a loss in 14 you could have used the additional basis to claim the 14 loss but not the carryover losses. Carryover losses stay until used against profits or disposed of.

Thank you so much for all your input. I really appreciate it. They did have a loss in 2014 as well so I was able to take some of it due to the additional money they put in. I use ProSeries but never quite trust the calculations of the basis statement. Even with all they added in, their basis was barely above zero so I never took their -30,000+ carry forward losses. The company is now liquidated, assets were old and almost all fully depreciated and disposed of years ago, just a few that were kept had a little FMV over basis which I claimed and offset by the carry forwards. This stuff confuses the heck out of me to begin with and their books were terrible. I sincerely thank you for all your input.

[kathyc2]

You're welcome. We all have areas where we need a little help or confirmation and that's what these boards are for.

[Roland Slugg]

Short of filing for bankruptcy, I don't see how an S Corp can be liquidated without the owner injecting enough additional funds to increase his basis to the point where all prior year losses are allowed.

Can anybody?