Excess Distributions S-Corp

Technical topics regarding tax preparation.
#21
Nilodop  
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Credit deserved and given, Michaelstar.
 

#22
JR1  
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For me, shareholder loan.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#23
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All.....

Using Proseries and I have to manually adjust balance sheet and equity.

Holding period of stock is 8 years.

I will generally book excess distributions to Shareholder Loan if I am confident it will be repaid the following year and the excess was an anomaly. That is not the case here and the client agrees with taxing it at LTCG. I don't have many S-corps anymore and refuse to take on new ones because of the abuses of shareholders.

Thanks all!
 

#24
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And I refuse to take on C corps! lol
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#25
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and refuse to take on new ones because of the abuses of shareholders.

Seems a little over the top. Maybe you shouldn’t take on partnership clients and individuals either…I mean, there are “abuses” by those groups too…
 

#26
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To me, it's about leading and teaching them what to do, and giving them confidence in letting you do the tax savings and keeping them away from trouble. I've just never had a problem over 3 decades.
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#27
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Jeff-Ohio wrote:
and refuse to take on new ones because of the abuses of shareholders.

Seems a little over the top. Maybe you shouldn’t take on partnership clients and individuals either…I mean, there are “abuses” by those groups too…


Yes, but the abuses are generally on a smaller scale and harder to hide on a personal return than a corp return. And I don't do many partnerships either. Just my opinion of course. I am sure all our practices see different types of taxpayers.

JR1 wrote:To me, it's about leading and teaching them what to do, and giving them confidence in letting you do the tax savings and keeping them away from trouble. I've just never had a problem over 3 decades.


Yes, I agree. I have a handful of S-corps left that have taken my advice and have done things right over the years. Those I will continue to work with, but new ones, nope.
 

#28
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Nilodop wrote:Harry asked about the entry in the equity section.

Post #10 was a reply to the OP, not Harry.
 

#29
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Has anyone here taken a shot at *defining* what an "excess distribution" is? In that regard, I highly recommend this article: https://www.uakron.edu/dotAsset/3fe302e6-9075-419f-baf8-9dd2af5d9552.pdf in the Akron Law Review.
 

#30
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I've read the article, and I especially enjoyed the typo/transposition/misspelling on page 39.
 

#31
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Harry Boscoe wrote:Has anyone here taken a shot at *defining* what an "excess distribution" is?

No. Maybe you are referring to a "distribution in excess of basis"? That's pretty easy, a properly filled worksheet spits the number out. The article linked does not mention "shareholder basis" or distributions in excess of same.
 

#32
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Maybe you are referring to a "distribution in excess of basis"?
No, I'm referring to the term "excess distribution." The Original Post in this thread stated that the shareholder "took too much money" [out of the corporation, by inference] and thereby created an "excess distribution situation." Somehow, vaguely, I remembered a legal article about "excess distribution" from a corporation's equity and I was quite surprised at being able to find the article easily here online. Some of the legal - as distinguished from tax accounting - aspects of paying too much out of a corporation are .. well .. they're sorta scary.

The article linked does not mention "shareholder basis" or distributions in excess of same.
The Appendix to the article, which analyzes the changes in this area made by the 1984 REVISED MODEL BUSINESS CORPORATION ACT, is especially interesting as it points out that in that act the lawyers stopped using accounting terms in defining what can be distributed and the consequences for exceeding that. If you don't read the whole article, let me just quote the second sentence in the article. Here's the second sentence: "In common law, there are limits on the amount of assets that can be distributed to owners."

Do you see where I might be coming from? It's not just about income taxes and accounting. There can be legal ramifications to paying "too much" from a corporation to its shareholders.
 

#33
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There can be legal ramifications to paying "too much" from a corporation to its shareholders. Yes, there can be, but doesn't it only come up if a creditor, employee, etc. complains? Or is there a penalty/punishment just for doing it? And how would the state know? I think I remember I may have learnt something about this in the only law course (other than tax law) I ever took - business law 1. It had to do with impaired capital or my impaired memory.
 

#34
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"...doesn't it only come up if a creditor, employee, etc. complains?"
Yes, I'm sure that's the case.

Are you saying that in the OP scenario there *aren't* creditors, employees, etc., who might be getting stiffed by the "excess" amount the shareholder is taking out of this S corporation? Among other things, I think I remember that the article says it might make the directors of the corporation, as individuals, liable for the "excess" that the corporation paid out to its shareholder.

It had to do with impaired capital or my impaired memory.
...or maybe both. ;)
Last edited by Harry Boscoe on 26-Sep-2019 12:56pm, edited 1 time in total.
 

#35
Nilodop  
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Just making the point that as long as the owner(s), employees, directors are one and the same, it's only a problemfor crditors, who would look to the shareholders, who should pay up to the extent of the "excess distributions".
Last edited by Nilodop on 26-Sep-2019 1:25pm, edited 1 time in total.
 

#36
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...the shareholders, who shpuld pay up to te extent of the "excess distributions".
Yeah, they *should*... ;)
 

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