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Old 01-04-2017, 10:06 PM
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help on closing books C-corporation Volunatary dissolution

Hi,

I do bookkeeping for corporation which has decided to voluntarily dissolve. I was working on closing the books and was looking for how to distribute the capital stock and retained earnings. This company does not have any fixed assets, it just has $40K worth of note receivables and Retained earnings of 35K and common stock 5K. This note receivable was from shareholder and he would not be able to pay to the company.
can i write off the receivable?
will there be any tax implication on the shareholder?
Does the corp need to issue any tax document to shareholder when receivable is written off?
Please advise.

Thanks for your time
Rachel


Last edited by Rachel : 01-04-2017 at 10:33 PM.


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Old 01-05-2017, 11:01 PM
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I do bookkeeping for corporation which has decided to voluntarily dissolve. I was working on closing the books and was looking for how to distribute the capital stock and retained earnings. This company does not have any fixed assets, it just has $40K worth of note receivables and Retained earnings of 35K and common stock 5K. This note receivable was from shareholder and he would not be able to pay to the company.
can i write off the receivable?=========> The C-corp loaned the money to the shareholder; The biz can charge off its notes receivable if part or all of the debt is uncollectable. Partially worthless debt is charged off at the end of the tax year or at the end of the following tax year. The IRS requires that the biz take the amount off its books when the biz deducts it on its tax return. A completely worthless debt is charged off at the end of the tax year it became uncollectable. If the biz did not take the deduction timely, the biz can file a claim for a credit or refund within the IRS time limit.The IRS requires a debt to be directly related a company's normal business activities in order to claim the uncollectable amount as a deduction, but it assumes that all corporate bad debts meet this requirement. Lenders must record partial write-offs in their financial books to take the bad-debt deduction. Although the IRS doesn't require the financial books to record total write-offs, it advises businesses to do so in case the IRS determines that only part of the debt is worthless. Normally, a business can deduct the bad debt in the tax year it recognizes the debt as uncollectable. However, a company has up to 7 years from the date of the original return (3 years for partial write-offs) or 2 years from the tax payment date, whichever is later, to file a claim for a total write-off


will there be any tax implication on the shareholder? ======>>it depends; in general, A debt that is cancelled is income to the debtor, since he has been enriched by the amount of the debt. But when the debtor is in bankruptcy or insolvent, section 108(a) of the Internal Revenue Code exempts the debtor's cancellation-of-debt income from federal income tax.

Loans from the C corp to shareholders are corp assets. Before dissolving the corp, these loans need to be recovered so that creditors can be paid and distributions made. If there are mitigating circumstances such as the shareholder with the loan filing for bankruptcy, the corp will forgive the loan ;then shareholder will have to report the loan as ordinary income. If the loan is recharacterized as a distribution and the shareholder doesn't have sufficient tax basis in his stock, then a taxable gain will result


Does the corp need to issue any tax document to shareholder when receivable is written off?=======> Generally, any creditor canceling debt of $600.00 or more is required to file Form 1099-C by Jan 31 of the next year following the date when the debt was canceled.



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Old 01-10-2017, 08:04 PM
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Thanks a lot Wnhough for your reply. I have 1 more question, while filing a C corp tax return, only if the assets value is more than $250,000 we will have to fill balance sheet section in the tax return, so since this corporation is closing and this is final return and all the assets and liabilites have to be written off will that matter if we write off the debt and not issue a 1099-C.

Second question is the same shareholder has another company and the company owes to him but since there is no revenue and the business is closing he will not get his money back can he claim that loss on his return?

Thanks
Rachel



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Old 01-11-2017, 03:47 AM
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Quote:
Originally Posted by Rachel View Post

#1Thanks a lot Wnhough for your reply. I have 1 more question, while filing a C corp tax return, only if the assets value is more than $250,000 we will have to fill balance sheet section in the tax return, so since this corporation is closing and this is final return and all the assets and liabilites have to be written off will that matter if we write off the debt and not issue a 1099-C.



#2Second question is the same shareholder has another company and the company owes to him but since there is no revenue and the business is closing he will not get his money back can he claim that loss on his return?

Thanks
Rachel
#1.It does not matter if the assets value/gross receipts is less than $250K or more than $250K, you can still file Sch L/M1 and M2 . I guess this is exactlysame for both S or C corp.A lender is supposed to file a 1099-C form if it ?cancels? $600 or more in debt. It files a copy with the IRS and is required to send a copy to the taxpayer as well. So the Form 1099-C might be issued in the shareholder?s name.i guess this situation I very complex. However, Entities not required by the tax code to file Form 1099-C may nevertheless voluntarily file the form in appropriate circumstances . I should say depends on the situation; if the C-corp cancels / forgives your debt to it, the canceled debt is dividend income to you on Form 1120 line 4. If you are a stockholder in the C- corp and you cancel a debt owed to you by the corp, you generally do not realize income. This is because the canceled debt is considered as a contribution to the capital of the corp equal to the amount of debt principal that you canceled. However, income from cancellation of debt for the repurchase of a debt instrument for less than its adjusted issue price. However, for a reacquisition of an applicable debt instrument after December 31, 2008, and before January 1, 2011, a corporation can elect, under section 108(i), to defer the income from COD in connection with the election. If the corp makes the election, the income is deferred and ratably included in income, on From 1120 line 10 over the 5-year period

#2;As mentioned above; aslongas you are a stockholder in the C- corp and you cancel a debt owed to you by the corp, you generally do not realize income. This is because the canceled debt is considered as a contribution to the capital of the corp equal to the amount of debt principal that you canceled.



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Old 01-16-2017, 12:24 AM
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Final year balance sheet for closing corp

Hi,

Please suggest closing entries for the below intangibles of corp which is not in business from 2013, it was dormant and had no business but kept on paying FTB $800K bcz it was trying to sell a license which it was able to in 2016 Jan. Now the owner/ shareholder decided to file the final return
Here are the numbers (altered for confidentiality purpose)

Goodwill (initial value: 350K and amortized all these years and value as of 2015 dec is 116667. can i recognize impairment loss in P&L for $116,667.

Liquour license was sold with a gain of $12000.

should i write off remaining value of the intangibles ( tradename $11500, covenant $11000, closing costs $5000)
value of lease has been completely amortized so zero( do i need to recognize recapture gain for its value)

Liabilities

Payable to shareholder 1 : $5K
Payable to shareholder 2: $85K

Equity"
Common stock: 200K
RE: $(119000) negative number


Thanks a lot for your time

Rachel



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Old 01-16-2017, 01:25 AM
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Quote:
Originally Posted by Rachel View Post
Hi,

Please suggest closing entries for the below intangibles of corp which is not in business from 2013, it was dormant and had no business but kept on paying FTB $800K bcz it was trying to sell a license which it was able to in 2016 Jan. Now the owner/ shareholder decided to file the final return
Here are the numbers (altered for confidentiality purpose)

Goodwill (initial value: 350K and amortized all these years and value as of 2015 dec is 116667. can i recognize impairment loss in P&L for $116,667.

Liquour license was sold with a gain of $12000.

should i write off remaining value of the intangibles ( tradename $11500, covenant $11000, closing costs $5000)
value of lease has been completely amortized so zero( do i need to recognize recapture gain for its value)

Liabilities

Payable to shareholder 1 : $5K
Payable to shareholder 2: $85K

Equity"
Common stock: 200K
RE: $(119000) negative number


Thanks a lot for your time

Rachel
Sorry i can not calculate all of these fin info; I suggest you need to contact an Enrolled Agent or a CPA doing taxes in yoru local area for motre accurate professional help.



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