Is there an ability to retroactively restructure a corporation?

lendaddy · 10-28-2008, 12:16 PM

If a small corporation losses money for 5-6 years then ultimately dies, no one realizes those losses via tax relief.

Now as I understand it, had that corp been an "s" corp, the owner would have been able to write off the losses against his income.

Is this correct and is there any recourse for a guy that learned about this late in the game?

lendaddy · 10-28-2008, 02:19 PM

Bueller?

Tim Hancock · 10-28-2008, 02:20 PM

Damn Lendaddy..... is the end near?

lendaddy · 10-28-2008, 02:24 PM

Quote:

Originally Posted by Tim Hancock

Damn Lendaddy..... is the end near?

Same as always, hanging in there. I'm just trying to position things as best I can regardless the scenario. It sucks that our accountant didn't warn us of this structuring issue (assuming my understanding is correct), we're talking six figures in taxes.

RWebb · RWebb's Garage

hire a lawyer

Chas911 · 10-28-2008, 02:43 PM

I think you are correct. I am not 100% sure, but I don't think you can make an S corp election for prior years. That is something your accountant should know.
There may be however, a few things you can still do.
Does the corporation have to be desolved?
Are there going to be future earnings that could be assigned to the corporation as long as the corporation still has a business purpose?
Are there assets in the corporation that are depreciated that could be sold to you for residual value?
If your accountant is sharp? What is he telling you to do?

lendaddy · 10-28-2008, 07:06 PM

Quote:

Originally Posted by RWebb

hire a lawyer

Yes, I am aware of this option. Thanks.

lendaddy · 10-28-2008, 07:09 PM

Quote:

Originally Posted by Chas911

I think you are correct. I am not 100% sure, but I don't think you can make an S corp election for prior years. That is something your accountant should know.
There may be however, a few things you can still do.
Does the corporation have to be desolved?
Are there going to be future earnings that could be assigned to the corporation as long as the corporation still has a business purpose?
Are there assets in the corporation that are depreciated that could be sold to you for residual value?
If your accountant is sharp? What is he telling you to do?

My accountant is an idiot best I can tell. The corp would likely be desolved. There would not be any future earnings. The assets could certainly be sold at depreciated value but they are borderline worthless. This would be a walk away situation where debts would overshadow assets by 2 to 1.

einreb · 10-28-2008, 07:22 PM

Quote:

Originally Posted by lendaddy

My accountant is an idiot best I can tell. The corp would likely be desolved. There would not be any future earnings. The assets could certainly be sold at depreciated value but they are borderline worthless. This would be a walk away situation where debts would overshadow assets by 2 to 1.

I mentioned this organization to you once before...

http://www.mmtc.org/

I don't know if they could 'help' you per say... but they might have someone who's brain you could pick. Your federal tax dollars at work.

Also, don't feel bad having an idiot for an accountant. You are not alone.

Eric Coffey · 10-28-2008, 07:29 PM

Quote:

Originally Posted by lendaddy

The corp would likely be desolved. There would not be any future earnings. The assets could certainly be sold at depreciated value but they are borderline worthless. This would be a walk away situation where debts would overshadow assets by 2 to 1.

If that's really the case, it sounds like BK is on the horizon. If you want to dissolve the corp. and walk away/liquidate, then its chapter 7 time. Or if you want to maintain and truly "restructure" the corp., then its chapter 11 time.

Shaun @ Tru6 · 10-28-2008, 07:35 PM

I've always had S corps because of the pass-through taxation. I think the law has changed, so I'm not 100% which, but you can amend your personal taxes either 2 years or 3 years back, so I would hope for you that you can also change the structure and declare and S election at some time in the past and get a minimum of 2 years of losses against income.

spend the $1000+ on a real tax attorney.

I wonder if you could create a new S corp that would buy the old one and it's losses.

RWebb · RWebb's Garage

"spend the $1000+ on a real tax attorney."

exactly.

rather than try to get a "subsidy" of opinion from those who lack the technical expertise to give a meaningful opinion -- esp. in your state - exchange some bucks to save your a$$ down the line

lendaddy · 10-29-2008, 05:19 AM

Quote:

Originally Posted by Shaun 84 Targa

I've always had S corps because of the pass-through taxation. I think the law has changed, so I'm not 100% which, but you can amend your personal taxes either 2 years or 3 years back, so I would hope for you that you can also change the structure and declare and S election at some time in the past and get a minimum of 2 years of losses against income.

spend the $1000+ on a real tax attorney.

I wonder if you could create a new S corp that would buy the old one and it's losses.

Yes, that's what I was hoping as well. Thanks,

FWIW I already have an attorney involved but I like to have a ballpark understanding of the subjects I call him on. Getting some free advice/direction on here and then honing it with him is much cheaper than having him educate me on the basics. I am also able to mull things over here and refine the questions I want to ask so as to optimize my time as believe it or not the guy's not cheap. I would have thought this was obvious but I guess not. I thank you guys for your help.

berettafan · 10-29-2008, 05:25 AM

you'll not be retroactively switching to an S corp. that ship has sailed.

berettafan · 10-29-2008, 05:26 AM

what is your basis in the c corp stock?

berettafan · 10-29-2008, 05:31 AM

you might switch to an S corp now (possibly even for '08) but you need to discuss basis with your CPA ALSO you need to understand other issues of going C to S (BIG tax, suspended losses, etc).

lendaddy · 10-29-2008, 05:32 AM

Quote:

Originally Posted by berettafan

what is your basis in the c corp stock?

All of the stock is owned by the President (not me). I'm not sure what you mean by basis exactly, original value?

lendaddy · 10-29-2008, 05:34 AM

Quote:

Originally Posted by berettafan

you might switch to an S corp now (possibly even for '08) but you need to discuss basis with your CPA ALSO you need to understand other issues of going C to S (BIG tax, suspended losses, etc).

We just wrapped up and filed fiscal '07. Are you saying that the corp could have changed right before filing and affected FY07? We were told it had to be done at the beginning of the year.

berettafan · 10-29-2008, 07:05 AM

if you don't own any stock what losses are you looking to take????

typically a change to 'S' would involve filing a short year return to get on a calendar year (add'l filing req'mts to do fiscal year for an S and many don't bother with it) then do your first S year pursuant to form 2553 instructions. there are methods for filing a late S election but i don't have them handy right now (at home with sick child).

in any case there are other issues with going C to S that have to be considered.

berettafan · 10-29-2008, 07:07 AM

also, in an S corp you need to have basis to take losses (and own stock of course).

'basis' is your stake in the company subject to a lot of somewhat complex rules (at least for S corps its complex; for C corps it's just like a stock you buy on the market in general).