Level 3

I had a disaster file dropped in my lap yesterday and I don't know what to do with it. This was my first tax season and I mostly worked on 1040's.

Client somehow at some point previous to 2013 contributed farmland to an 1120-S, at least on his books, because it's illegal in my state for a corporation to own farmland. So the farmland is actually in his name only (inherited from his father back in 2008 apparently) even though the 1120-S is 50-50 him and his wife. They sold a portion of the farmland in 2017. My coworker (who no longer works for us) appropriately listed the land sale on client's personal return in 2017. On his books, client lists the land sale in 2018 in the Scorp as what I can only call a contra asset.

It seems to me that the farmland, the section 1250 buildings that are attached to the farmland, the depreciation related to the buildings, and the contra asset "land sale" need to be removed from the books of the Scorp, along with an adjusting entry to retained earnings (Client does not have any equity accounts besides retained earnings and distributions on the books despite a law requiring $1000 in capital stock in this state) I made an entry to to fix the trial balance in Workpapers CS. However, when I go to try to basically remove these assets from the 1120-S, Proseries gets upset with me and doesn't want me to adjust retained earnings and says if I unclick the box to automatically calculate that I will have to enter the K1s manually.

I don't even know how to appropriately remove the assets from the 1120-S, as "Removal of erroneous assets" as a description may not please the IRS. But its not a sale or disposition, the Scorp does not actually own the land its been reporting as an asset since at least 2013. Someone please help me as I have no idea what to do.

MESS NUMBER TWO: Client has loans to two former schedule C LLCS that were administratively dissolved in 2018 listed as assets on the Scorp books for 2018. These loans are included as assets on the 1120-S, starting in at least 2013. If I write off these loans as bad debts and zero out these accounts, is that loan forgiveness and would it need to be reported as income?

Thank you for any assistance you can provide, I am in over my head.


0 Cheers