Not Cashing Checks

[Snaggletooth]

I have a client who has the luxury of not having to take money out of his company (S Corp).

There are legitimate expenses incurred by the owner who is entitled to reimbursement. I tell him he can write himself a check and deduct these expenses.

He does write himself occasional reimbursement checks but then does not cash them. Not now, Not ever.

What is the effect? Amending the S corp return such that the deduction is not taken?

[spanel]

I have a client who has the luxury of not having to take money out of his company (S Corp).

There are legitimate expenses incurred by the owner who is entitled to reimbursement. I tell him he can write himself a check and deduct these expenses.

He does write himself occasional reimbursement checks but then does not cash them. Not now, Not ever.

What is the effect? Amending the S corp return such that the deduction is not taken?

I would go with 3 options..

Tell him to cash them ASAP

or

Void the ones older than 6 months old and credit those accounts for the date you decide to void them.

or

Credit the shareholders dist account instead of the bank.

Do not amend any returns. I would probably do option 1 or 3.

Chris

p.s. Does he work for said company and receive a paycheck??

[Rapid Robert]

"He does write himself occasional reimbursement checks but then does not cash them"

Do you mean, the corporation writes him reimbursement checks?

I don't think it matters whether he cashed them or not, he had constructive receipt. Until cashed, the checks are just liabilities on the company books.

I would treat the reimbursements as corporate expenses, no need to change anything.

[taxea]

If he isn't going to cash the checks then I agree with adding them to this capital/basis.

[Snaggletooth]

Good suggestions

Thanks for the input. I'm wondering if there is a preferred GAAP treatment which could be separate and apart from tax treatment.

One thing not discussed is the legal requirement under state escheat laws. Most states have a law that requires the funds from uncashed checks to be placed in an escrow account with the state, who presumably will hold the money forever. But I don't know anyone who complies with these escheat laws. Most people void the checks and increase their "book balance" for their bank account.

[Snaggletooth]

[QUOTE=Rapid Robert;183849]"He does write himself occasional reimbursement checks but then does not cash them"

Do you mean, the corporation writes him reimbursement checks? Yes.

Happy to have Rapid Robert on the forum. Down here we have all manner of "Bobs" such as BillyBob, JoeBob, JimBob, etc. You might be the missing family member as in "FastBob". The other "Bobs" have six fingers.