How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask TaxWhisperer Your Own Question

TaxWhisperer
TaxWhisperer, Enrolled Agent
Category: Tax
Satisfied Customers: 619
Experience:  Tax Problem Solver extraordinare. I address IRS Notices, Liens, Levies, audits, etc.
63791118
Type Your Tax Question Here...
TaxWhisperer is online now
A new question is answered every 9 seconds

My brother in law is an MD who is selling his accounts receivable

Resolved Question:

My brother in law is an MD who is selling his accounts receivable worth about 20 million to a medical funding company. Please comment on what kind of tax he will be looking at paying on the proceeds of the sale (he will be selling it for about 4 million). Would it be capital gains tax, and if not, why not? Thank you
Submitted: 1 year ago.
Category: Tax
Expert:  TaxWhisperer replied 1 year ago.

TaxWhisperer :

Does your brother report his taxes on a cash or accrual basis?

Customer:

i have no idea. Pls hold and I will ask my husband

Customer:

what is the difference between these two please?


 

TaxWhisperer :

When you are dealing with accounts receivable, you need to know if the A/R has already been included in income. Given the size of the number, my instinct would be that he was on an accrual basis, but that is only an assumption.

TaxWhisperer :

Accrual and cash basis are tax accounting concepts.

TaxWhisperer :

In accural you realize income when you issue a bill. You also realize an expense as soon as you incur it, regardless of whether ot not it's been paid.

TaxWhisperer :

On Cash basis you only realize taxable income when you receive the cash, therefore "accounts receivable doesn't exist!"


 

Customer:

Based on the the amount billed out, the income was taxed from the payments from insurers. Whats left in the form of A/R is money "still owed" by the insurance companies.


 

TaxWhisperer :

Yes, Accounts Receivable means the money is "still owed". I understand. The question is whether his books are kept on an accrual basis or a


cash basis.

Customer:

accrual


 

TaxWhisperer :

Okay, now the next question: If his books were kept on an accrual basis has he already written off these receivable as "bad debt" on his books?

Customer:

no. these are not bad debt. the accounts are being sold as assets


 

TaxWhisperer :

This doesn't mean he let them go. It's an accounting determination the it is "more likely than not" that he would not collect the $20 million. (Since he sold it for $4, this seem reasonable.

TaxWhisperer :

Writing them off doesn't mean he can't sell them.

TaxWhisperer :

If you want to assume that these accounts were not written off, that's fine with me.

Customer:

yes, lets assume they were not written off


 

TaxWhisperer :

Okay, then I have your answer:

TaxWhisperer :

Based on the two assumptions that his taxes were reported on an accrual basis and that he never took a bad debt write off, then he is realizing a $16 million dollar ordinary loss on the sale of the accounts receivable. It would not be capital as A/R is not a capital asset. (This by the way is the better answer.)

Customer:

Thank you.


Secondly, if we have a tax debt of over $100 000, can we pay it off in installments?

TaxWhisperer :

Yes, however for a debt that size, the IRS will want a financial statement.

TaxWhisperer :

Is this a personal tax debt or the corporation?


 

Customer:

Must a financial statement be produced even with personal taxes?


 

TaxWhisperer :

Yes, it depends on the amount of taxes owed.

TaxWhisperer :

Under $25,000, they don't ask for a financial statement.

TaxWhisperer :

$25-$50K, they ask for a few numbers but don't verify them at all.

TaxWhisperer :

Over $50K, they require IRS Form 433-A to be submitted.

Customer:

OK. Thank you very much.


 

TaxWhisperer :

By the way, since we are talking about accounts receivable and owing taxes in the same conversation, it is possible to get the IRS


to "levy your accounts receivable". They become your bill collector--of course, this means that these accounts receivable will learn


that you have tax issues.

TaxWhisperer :

Just wanted to mention that. If you have no further questions, please click on happy face below.

TaxWhisperer, Enrolled Agent
Category: Tax
Satisfied Customers: 619
Experience: Tax Problem Solver extraordinare. I address IRS Notices, Liens, Levies, audits, etc.
TaxWhisperer and 7 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.