Deductibility of S corporation losses often is needlessly restricted

Article Abstract:

The Tax Reform Act of 1986 introduced passive loss limitation rules for S corporation shareholders, restricting the shareholders' ability to deduct losses and deductions. The shareholders ability to deduct losses is restricted by basis rules an the limitations on investment interest and passive losses. The deductibility of losses is restricted to the amount the shareholder has at risk in the corporation. Losses and deductions are deductible only to the extent of the shareholders' basis in the stock and indebtedness of the corporation. Losses and deductions exceeding that basis are disallowed and carried forward. Shareholders cannot increase their basis in an S corporation by guaranteeing debt or loaning the S corporation money through related party loans or reduced basis loans.

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How to facilitate correspondence with IRS and to reduce notices sent to clients

Article Abstract:

Effective responses to notices received from the Internal Revenue Service depend upon the type of notice sent by the IRS. Recipients of matching letters should identify the discrepancies between the information returns on file and the actual tax returns on file, and return supporting documentation to verify the taxpayer's position on such discrepancies. Penalty notices received should be responded to with prompt payment, followed by requests to repeal the penalty (if appropriate) or letters explaining the penalty's misapplication. When the IRS has sent an error notice, the recipient should respond by returning the refund check received from the Service; if cashed, the check in error could result in the recipient's being assessed interest penalties.

Records and correspondence, United States. Internal Revenue Service, Business letters, Commercial correspondence

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Negotiating strategies when a client wants to sell a closely-held corporation

Article Abstract:

Though the seller will usually want to sell stock instead of assets, tax results do not have to be altered to satisfy the buyer. Case study techniques give detail on the structure of a sale for a closely-held business and how to distribute the tax effects on each option. Shareholders must make payments directly, though not by liquidating the corporation, when a covenant not to compete is received.

Finance, Accounting and auditing, Corporations, Corporate finance, Buy-sell agreements, Liquidation

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