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Are S Corp suspended carryover losses entered on its balance sheet as an Asset?

Pablo
Level 3
 
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sjrcpa
Level 15

Deferred Tax asset is a GAAP thing, not tax.

Sounds like the sale of the boat is business income to which the NOL can be applied. Ans selling for 2 million implies there is cash with which to pay tax.


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27 Comments 27
sjrcpa
Level 15

Deferred Tax asset is a GAAP thing, not tax.

Sounds like the sale of the boat is business income to which the NOL can be applied. Ans selling for 2 million implies there is cash with which to pay tax.


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Pablo
Level 3
THANK YOU. Unfortunately a lot of that cash is needed to pay other huge obligations including lots of back tax to IRS, etc. Wouldn't the sale of the boat/other assets be a $1.9M L.T.C.G. ($2m less $100k misc assets= $1.9m L.T.C.G.) Then at least the 20% C.G. rate would apply. And we'll ask the company that's buying us to allocate $400k as non-compete clause. Then utilize the suspended losses to offset the $400k. Does this make sense?  So much appreciate your help. Sorry for keep asking more questions.
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abctax55
Level 15

No.

"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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Pablo
Level 3
Not sure if this is protocol to reply. Thank you for prompt answer. Some CFO incorrectly told me this but I'm glad checked with community. Consequently will not put on B.S. nor use as part of asset cost basis.
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George4Tacks
Level 15
@Ballard411 Yes, this is the correct protocol. What type of loss carrryover are you referring to? Passive? NOL? Capital Loss?

Here's wishing you many Happy Returns
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Pablo
Level 3
NOL and its non-passive THANK YOU!
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Accountant-Man
Level 12
S corps do not have NOLs unless they were previously C corps.
** I'm still a champion... of the world! Even without The Lounge.
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Accountant-Man
Level 12
The unused losses, if unused due to lack of basis or lack of risk, belong to the shareholders, not the corp.
** I'm still a champion... of the world! Even without The Lounge.
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abctax55
Level 15
:+1::+1:
"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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Pablo
Level 3
Thanks Accountant Man. When I mentioned NOL, I meant S Corp's Suspended prior year c/y losses as an S Corp.    Note these losses belong to the S/H.
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abctax55
Level 15
Then *please* stop saying "S Corp's Suspended prior year c/y losses as an S Corp".
Your terminology is incorrect, and just serves to confuse the entire issue.
Again - you need tax pro help.  NOT internet forum help.
"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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Pablo
Level 3
Noted with thanks
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Accountant-Man
Level 12
S corps have tricks to them, and if you screw them up it has a cost to the owners.
** I'm still a champion... of the world! Even without The Lounge.
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Pablo
Level 3
Again noted with thanks. I'm waiting for tax guru/CPA I know to pick her brains when she's back from extended trip. In the meantime I'm trying to  formulate some guidelines for owner's sale of company.
Up until yesterday the Acquiring co. was going to purchase our assets. Now they want to buy the stock instead for our 3ea S Corp entities. We have substantial S Corp Suspended losses which want to utilize for current owner. Thanks so much for your input.
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Accountant-Man
Level 12
They belong to the current owner. They cannot be sold.
** I'm still a champion... of the world! Even without The Lounge.
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abctax55
Level 15
I*give* up...
S-Corps don't HAVE suspended losses (hardly EVER): the shareholders do.
It seems impossibly for you to grasp this concept.

And if someone is foolish enough to buy the STOCK of a Corp that appears to have as many issues as this one does...I'd take the money and run. Fast. Damn the tax consequences of the *gain* you keep discussing.
"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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Pablo
Level 3
Sorry for the confusion. Yes I understand the suspended losses belong to the sole shareholder Not the S Corp. (And get reflected on Form 1040 if/when applicable). Also note that if S/H sells all her shares, the Purchaser does not get suspended losses in the transfer. Thanks and good day
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Pablo
Level 3
P.S. Dear abctax55, Yes this company has beaucoup issues not to mention little cash flow. I cannot wait until they take the money and head for the hills. My sincere apologies to all of you for all my confusion.
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sjrcpa
Level 15

Unused losses could potentially be part of a Deferred Tax Asset for GAAP financial statements but otherwise they do not go on the balance sheet as Anna said. Protocol wise, it is appreciated when people say thanks.


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Pablo
Level 3
Thanks so much. May I expand question?  Deferred Tax Asset is what I was thinking ( just heard of it). Our fully depreciated primary asset (charter boat) and all other assets to be sold resulting in big C.G. Sole member retiring. So I'm wondering if any way this deferred tax asset can be used to reduce C.G.    

Optimistic example to calculate C.G:  Sales price $2million less B.S. assets of Deferred Tax Asset $400k and misc assets $100k = C.G. $1.5M. I trust this thinking is crazy thinking. BTW the suspended loss is of course $400k. A colleague recommended this approach but I highly question it. I think the only way to handle this scenario is to include a non-compete clause @ $400k. Then this would be ordinary income. Consequently the $400k suspended losses could offset this. Any input is most welcome.  THANK YOU!!
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abctax55
Level 15

"  ...  And we'll ask the company that's buying us" 

So, this isn't a client?  

I suggest, especially in light of the amounts involved, that professional help be sought (and not via the internet).

"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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abctax55
Level 15
"Then at least the 20% C.G. rate would apply"
That's the MAX for capital gains; the rate is anywhere from 0% UP TO 20%.
But a large capital gain can/usually does have a major impact on the other income on the tax return.
This stuff isn't simple, nor is it black or white.
"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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Pablo
Level 3
Roll Tide Roll, I'm P/T (contractor) controller for the co. being sold. I agree that I definitely need to talk with a more knowledgeable tax pro. Plan on doing so ASAP. Getting a tentative game plan in the meantime.
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Pablo
Level 3
Thank you both for your most valuable input. To clarify one last thing for now.... Would you agree that the $400K non-compete clause (ordinary income) can be offset by applying the suspended losses at S Corp level? Consequently flowing via  S Corp K-1 to Form 1040 Schedule E: NOI $400K/Suspended losses - $400k/ Cap Gain $1.5M.  This assumes $2m sales price comprised of $400k non-compete and $1.6M Assets sale.  (less other F.A $100K).  This is only part of a bigger puzzle. But a big step.   THANKS MUCH APPRECIATED
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itonewbie
Level 15

And we'll ask the company that's buying us to allocate $400k as non-compete clause. Then utilize the suspended losses to offset the $400k. Does this make sense?

Generally no under §1060.  You can't alter characters of the income by arbitrarily allocating sales proceeds to non-compete by selling the assets at less than FMV.

As my friends suggest, you should engage a competent tax professional to assist you with this transaction.  There is obviously more to this than the initial information you provided in your two posts.

---------------------------------------------------------------------------------
Still an AllStar
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sjrcpa
Level 15

You do need to get outside advice. In your two posts you ahve said the losses are susoended due to basis and they are due to an NOL.

If the sale of the boat generates business income, 1231 gain and ordinary inome recapture, it increases basis and allows suspended loses to be used,

I question the wisdom of creating $400K ordinary income out an otherwise low(er) taxed 1231 gain. Also.who is doing the selling/noncompeteing? S Corp or shareholder?


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Pablo
Level 3
Thanks again and apologies for confusion. I will be seeking outside advice.
This entity lost money for years due to interest expense and depreciation of the boat exceeding charter revenue. The last 1-2 years and 2019 finally show profits. So when there's a profit, I apply offsetting amount from suspended losses (with due diligence to basis/at risk) to have net zero effect via Schedule E.

So I'm thinking the only way to utilize the $400k suspended losses will be to create income of same amount.
Won't the sale of boat = a 1231 C.G? Perhaps I'm missing the point. It takes me a few times to comprehend!
Are you saying the sale of boat would result in business income and increase basis?

WAIT A SECOND! I think the lightbulb just went on!!
The 1231 C.G. would be a separately stated income item to increase the basis. With that basis, can use the suspended losses. However the almost $2M C.G. still flows to Form 1040.

Good question on who is doing the selling. Both are options; either sole shareholder selling the S Corp which has little value on the books. Or S Corp just selling all the assets.

BTW, this is only one of 3 entities undergoing this process. All in similar situation.
We won't go there.....


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