The IRS issued proposed regulations on when an S corporation shareholder can increase basis in the S corporation’s stock based on loans to the corporation.
This article provides an annual update of recent IRS rulings, guidance, and other developments concerning S corporations. It discusses S corporation eligibility, elections, termination issues, second class of stock, and trusts owning S corporation stock.
This article discusses S corporation eligibility, elections, and termination issues from the period July 2009–July 2010.
Without proper planning, the at-risk rules set out in Sec. 465 can limit the amount of deductible S corporation losses.
Basis is a beneficial concept for a taxpayer—it shields the taxpayer from tax on the sale of an asset and can produce losses that reduce tax liability. It has been described as a “summary of the tax impact of [past] events” that have affected an asset. Nevertheless, basis can be elusive: It can appear or disappear when we are not paying attention. It can cling to an asset, be adjusted up or down, replicate itself, or shift to another asset. In other words, the summary that basis provides can have a number of potential twists and turns.
When an S corporation has losses and deductions in excess of basis, some of which are nondeductible, noncapital expenses, will there be a carryover of the nondeductible items for purposes of reducing basis in a future year?
Practitioners advising on proper methods to use for shareholders to acquire basis in loans made to S corporations incurring losses can take away several points from recent court decisions.
Under the economic outlay doctrine, to obtain basis in an S corporation with respect to debt, a shareholder must make an actual economic outlay, the outlay must somehow leave the shareholder poorer in a material sense, and the debt created must run directly between the shareholder and the S corporation.
A practitioner should take special care in advising clients on shareholder loans to an S corporation. Repayment of the loans by the corporation has the potential to generate unexpected taxable income to the shareholder.
S Corporations’ Charitable Contributions of Appreciated Property and Shareholders’ Adjusted Basis in S Stock
PPA amended Sec. 1367(a)(2) to limit the reduction in a shareholder’s basis to the shareholder’s pro-rata share of the S corporation’s adjusted basis of the contributed property, not the FMV.
Part I of this two-part article discusses S corporation eligibility, elections, and termination issues, including several changes related to the Small Business and Work Opportunity Tax Act of 2007.
Editor: Anthony S. Bakale, CPA, M.Tax. On April 12, 2007, the Service issued proposed amendments to Regs. Sec. 1.1367-2 and -3 (REG-144859-04), to address concerns about the treatment of S shareholders’ open account debt. Background Regs. Sec. 1.1367-2(a) states that open account debt is a shareholder advance that is not
Editor: Albert B. Ellentuck, Esq. Income in respect of a decedent (IRD) generally consists of items of gross income a decedent was entitled to at death that, because of the decedent’s method of accounting, were not included in the final individual return; see Regs. Sec. 1.691(a)-1(b). IRD is included in