LP and S corp

[S T]

I have a client that has a

1. Limited Partnership, they are
2. General Partner (S Corp in the Limited Partnership)
3. the shareholders (husband and wife) of the S Corp

The LP shows a loss, the S Corp receives the loss. Now when I get to the shareholders (h/w of the S Corp) they have infused monies for some legal fees that did not run through the books of either the S Corp or the LP.

How do I treat those expenses?? I have a potential for the shareholders to be at risk and have some "income" based on the at risk rules.

Sandy

[dsi]

I have a client that has a

1. Limited Partnership, they are
2. General Partner (S Corp in the Limited Partnership)
3. the shareholders (husband and wife) of the S Corp

The LP shows a loss, the S Corp receives the loss. Now when I get to the shareholders (h/w of the S Corp) they have infused monies for some legal fees that did not run through the books of either the S Corp or the LP.

How do I treat those expenses?? I have a potential for the shareholders to be at risk and have some "income" based on the at risk rules.

Sandy

I'm a little confused here. Are there other partners besides the S-corp?

[S T]

Lp

Dave,

Sorry, if you are confused, but then I am already confused on this issue. Limited Partnership, my client is the General Partner (S Corp) in the LP. My client is the h/w shareholder of the S Corp that is the General Partner in the LP. They have the greater portion of the loss pass through from the LP, approx 80%

Shareholders have paid for expenses outside of the S Corp, S Corp is bascially bankrupt and has no income, but ongoing expenses. I am trying to find a way for the shareholders to deduct the expenses that they have paid for out of pocket, since the S Corp probably will not be able to reimburse.

Thanks,

Sandy



Sandy

[Bees Knees]

I think I posted this for you in another thread, but here it is again...

TTB, page 8-13:

Paying Expenses of an Employer
If the expense paid by an employee is that of the employer and not
the employee, the expense might not be deductible. This could be
the case where a taxpayer is both the shareholder and employee
of his or her corporation. The shareholder employee may typically
pay a corporate expense, such as office rent, out of personal
funds when the corporate checkbook is low on funds. Since the
expense is a liability of the corporation and not the employee, the
expense is not deductible by the employee because it is not an
ordinary and necessary business expense under Section 162 (T.C.
Summary Opinion 2004-149). However, if the corporation has a
resolution or policy in place requiring a corporate officer as an
employee of the corporation to assume certain expenses, those
expenses would be deductible by the employee, subject to the 2%
AGI limitation on Schedule A. (T.C. Memo. 2005-197)

The proper way, of course, is to have the husband and wife loan the S corp cash, so that the S corp in turn can pay these expenses, or reimburse the shareholders under an accountable plan. Or have the husband and wife contribute paid in capital to the corp to allow the corp to pay the expenses.

What the courts are saying in TTB above is that you can't just take over paying expenses out of your own pocket if you aren't the one liable for the expense and then expect to deduct the expenses someplace.