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S-Corp - Vehicles titled in Sole Owner's name

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Level 1

Here's the scenario...

Client formed an S-Corp in 2019 of which he is the sole member.  It is a construction company.  The client has two pick-up trucks used 100% for the business (the trucks are used to haul supplies out to the work sites, he has a separate vehicle for his commuting and personal drives). The pick-up trucks are titled in his name NOT the S-Corp's name.  The S-Corp has been directly paying all the expenses for the vehicles--car payment, gas, insurance, maintenance, dmv fees, etc. He treats them as business vehicles.  He does not have a written accountable plan. He hasn't been logging miles

For tax purposes, what are my options?

Can I treat the vehicles as being owned by the S-Corp? Record the assets and the car loans on the balance sheet and deduct all the actual expenses including interest on the loans and depreciation. I've seen some mentions of "beneficial ownership" but I haven't come across any articles actually saying it's an IRS approved solution.

Is there a way to retroactively create an accountable plan under the actual expense method if he's able to pull together all of the documentation supporting the expenses? Although I believe the car interest would still need to be treated as compensation, correct?

Or do we need to treat all the actual vehicle expenses paid by the S-corp as compensation? 

 

Thanks for your help!

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Level 12

@Chris45 wrote:

Client formed an S-Corp in 2019 of which he is the sole member.  It is a construction company.  The client has two pick-up trucks used 100% for the business (the trucks are used to haul supplies out to the work sites, he has a separate vehicle for his commuting and personal drives). The pick-up trucks are titled in his name NOT the S-Corp's name.  The S-Corp has been directly paying all the expenses for the vehicles--car payment, gas, insurance, maintenance, dmv fees, etc. He treats them as business vehicles.  He does not have a written accountable plan. He hasn't been logging miles

For tax purposes, what are my options?

Can I treat the vehicles as being owned by the S-Corp? Record the assets and the car loans on the balance sheet and deduct all the actual expenses including interest on the loans and depreciation. I've seen some mentions of "beneficial ownership" but I haven't come across any articles actually saying it's an IRS approved solution.

Is there a way to retroactively create an accountable plan under the actual expense method if he's able to pull together all of the documentation supporting the expenses? Although I believe the car interest would still need to be treated as compensation, correct?

Or do we need to treat all the actual vehicle expenses paid by the S-corp as compensation? 


 

Accountable Plan ... no.  Reimbursements need to be paid timely (I think it is 60 days after the expense).

I also would not enter it as a loan, assuming there are not loan documents between the corporation and shareholder (and it definitely does not seem to have the intent of a loan).

I see no problem with the corporation paying directly for gas and repairs/maintenance.  Those seem to be direct corporate expenses, and I see no need for the corporation to own the vehicle to pay those expenses.

As for your question of "beneficial" ownership, I don't know.  But I wouldn't do it unless I found some evidence that was allowed.  If there was a written declaration that the shareholder "contributed" the vehicle to the corporation but did not change the title, then you MIGHT have more ground to stand on.  But I haven't seen anything solid that is even allowed.

 

As a side note, you may want to tell the client to double-check his insurance.  He might not be covered.  High business use, especially business use by the corporation, would almost positively need a commercial policy.  

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3 Replies 3
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Level 13

"The pick-up trucks are titled in his name NOT the S-Corp's name"

This Employee submits for Mileage reimbursement. The S Corp treats the earlier payouts as Loans to that employee. You net the amounts against each other.

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Level 13

Oh, sorry...

"He hasn't been logging miles"

 

Yes he has; you told us 100%.

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"Level Up" is a gaming function, not a real life function.
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Highlighted
Level 12

@Chris45 wrote:

Client formed an S-Corp in 2019 of which he is the sole member.  It is a construction company.  The client has two pick-up trucks used 100% for the business (the trucks are used to haul supplies out to the work sites, he has a separate vehicle for his commuting and personal drives). The pick-up trucks are titled in his name NOT the S-Corp's name.  The S-Corp has been directly paying all the expenses for the vehicles--car payment, gas, insurance, maintenance, dmv fees, etc. He treats them as business vehicles.  He does not have a written accountable plan. He hasn't been logging miles

For tax purposes, what are my options?

Can I treat the vehicles as being owned by the S-Corp? Record the assets and the car loans on the balance sheet and deduct all the actual expenses including interest on the loans and depreciation. I've seen some mentions of "beneficial ownership" but I haven't come across any articles actually saying it's an IRS approved solution.

Is there a way to retroactively create an accountable plan under the actual expense method if he's able to pull together all of the documentation supporting the expenses? Although I believe the car interest would still need to be treated as compensation, correct?

Or do we need to treat all the actual vehicle expenses paid by the S-corp as compensation? 


 

Accountable Plan ... no.  Reimbursements need to be paid timely (I think it is 60 days after the expense).

I also would not enter it as a loan, assuming there are not loan documents between the corporation and shareholder (and it definitely does not seem to have the intent of a loan).

I see no problem with the corporation paying directly for gas and repairs/maintenance.  Those seem to be direct corporate expenses, and I see no need for the corporation to own the vehicle to pay those expenses.

As for your question of "beneficial" ownership, I don't know.  But I wouldn't do it unless I found some evidence that was allowed.  If there was a written declaration that the shareholder "contributed" the vehicle to the corporation but did not change the title, then you MIGHT have more ground to stand on.  But I haven't seen anything solid that is even allowed.

 

As a side note, you may want to tell the client to double-check his insurance.  He might not be covered.  High business use, especially business use by the corporation, would almost positively need a commercial policy.  

View solution in original post