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S Corp loss carryover, no k-1 received in 2018 but

Technical topics regarding tax preparation.
30-May-2014 1:43pm
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?

22-Apr-2014 3:06pm
WA State
BerkshireCPA wrote:What if he puts a note payable on the S Corp books to the LLC?

Here's your planning point...make sure he doesn't.
Further, there has been no loan agreement. So, there would be no substance to recording it in that manner.
If your clients own the S-corp, why aren't they in control of what the tax return reflects?

12-Jun-2014 6:13pm
North Carolina
Unless the LLC is a disregarded entity I am not seeing how your client gets basis. Proceeds from the sale of the asset that belonged to the LLC belong to the LLC not directly to your client. There is a missing link in the chain because the money went straight from the LLC to the bank to pay off the loan to the S corp.
Because on T.A. ten was the most you were allowed

19-Dec-2014 10:01pm
The money from the sale never went directly to the LLC either. The bank plus another creditor of the S Corp grabbed the amount they were owed from the proceeds of the property owned by the LLC. The rest went into escrow. I guess the escrow funds are an LLC asset and I assume the accountant is going to have to account for some of the monies used to pay off corporate debt. The partners of the LLC own the S Corp and that is how I figure they increase their S Corp basis.

My Client was a 10% owner of the S Corp and a 33.33% of the LLC. All partners and shareholders personally guaranteed the loans. I asked the bank to do two separate transactions and to deposit monies into the S Corp bank account and then take it right back to pay off the corporate debt but they ignored that request and grabbed the money at closing.

We are not in charge of preparing the entity tax returns and the other shareholder in charge never paid their accountant for the 2017 returns.

I still believe my 10% shareholder client should only be responsible for 10% of the corporate dent but even our attorneys are saying not necessarily because of the personal guarantees

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