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The sale of territory rights would be considered a capital asset used in a trade or business, so it would be considered a Section 1231 gain reported on line 9 of form K-1 of the S-Corp tax return. Section 1231 gains are treated the same as capital gains which receive a more favorable tax rate than ordinary income. If you are in the 28% bracket for ordinary income, your capital gains (including section 1231 gains) are taxed at 15%.
I will add a bonus of $ 15 if you could please answer another question . I filed a Form 1139 carrying back a 09/30/11 fye C corp NOL of $ 41K to 09/30/08 ( approx $ 28000 and 09/30/09 $ 13,000) I thought I had to elect Sect 172 (b) (1) (H) under Rev Proc 2009-52. I got a letter saying it was rejected due to the fact that If electing an extended carryback under WHBAA it only applies to tax periods ending on or before Nov 30, 2010.
Shall I resubmit the Form 1139 with out any election, or is there an election I am not aware of. I don't do these forms very often.
There is income and tax to recoup in 09/30/08, 09/30/09, none in 09/30/10.
Please let me know if $ 15 is enough, I can send you $ 25 if you think that is more fair.
Normally an NOL can be carried back only 2 years, and then forward for up to 20 years. If your loss occurred in 2008 or 2009 (including fiscal years up to Nov 30, 2010) you could elect under section 172 to carry that loss back either 3, 4, or 5 years.
Since your loss year occurred in a tax year after the election was available, you are only permitted to carry the loss back 2 years, and then if the loss is not completely absorbed in those two carryback years, it will carry forward from there.
So you will need to file a from 1139 to carry the loss back to 09/30/09 and 09/30/10. You mentioned that there is no income in 2010 to recoup tax, so if the entire loss is not absorbed in the 09/30/09 year, the remainder will carry to the 09/30/12 tax year. Be sure to include both years (09/30/09 and 09/30/10) on the form 1139 to show that you are not using any of the loss in 09/30/10 year so that any remaining loss will carry forward. When applying an NOL carryback or carryforward, you must apply the loss to the earliest year first, and then each succeeding year in order.
Hope this helps.
I am asking a follow-up question to the first issue above. If the taxpayer has $ 33K in Wages, the $ 45K in Territory rights on Sched D Line 11 and an $ 8K loss in rental real estate, all deductible on Sched E for a total Income of $ 69K and a standard and exemption of $ 23300 and taxable income of $ 45, is it possible to only pay 363 in federal tax....I don't worry about a little tax but NO tax scares me to think my software is incorrect.....any thoughts?