We have a client with carryover S corp losses they could not take because they lacked basis. They have not received the 2018 K-1 nor will they be getting it by Tuesday.
Situation is a bit of a mess and will be tied up in the courts for a while.
S Corp owed the bank a decent amount of $$$ that was guaranteed by the shareholders as well as secured by a property held in a separate LLC. The LLC was owned by the same shareholders of the S Corp.
The building was sold by the LLC and the bank was paid the remaining mortgage on the property. That same bank held the S Corp debt and the proceeds from the sale were used to pay that off as well and the rest sits in an attorney escrow account. All of this took place in 2018.
With no K-1 from the S Corp or the LLC, would it be wrong to free up prior losses from the S Corp. We know that the shareholders (indirectly through the sale) paid off the corporate debt which would increase their basis. I was hoping to use this to lower the shareholder tax liability but I have no idea how the S Corp accountant will account for the transaction. What if he puts a note payable on the S Corp books to the LLC?