I have an accounting problem I need serious help with.
Here is the situation:
I have a brother that leased a Van back in 2007 for his LLC Company which was used 100% for business with a price tag of $27,000. It was handled as an operating lease and expensed monthly. It was not put on the books as an asset.
In 2010 the Company ran into financial problems and was unable to make the payments. The Leasing Company was going to take the vehicle, but instead, offered the Company a settlement amount to buy the vehicle in the amount of $12,000. The LLC Company borrowed the money from another source to buy the vehicle from the Leasing Company in late December 2010. The purchase was recorded as an asset and the loan as a liability for $12,000, but the vehicle was not capitalized and depreciated in 2010.
OK, take a breath. The owner of the LLC filed 2010 taxes
in January 2011 which is of course filed personally. The Leasing Company then sent the IRS a 1099C for the cancellation of debt for $6900. The IRS adjusted the owners 2010 taxes to reflect the $6900 as income, adjusted all other personal expenses accordingly and sent a tax bill.
The company was insolvent at year end 2010, so I thought the 982 form “Reduction of Tax Attributes Due to Discharge of Indebtedness” could be filed. Since the taxes are filed personally by the owner, I’m not sure how this is to be done? Is it the Company that can be insolvent, or does it need to be the owner that is insolvent? Whew!
Another thing, since the now purchased vehicle was not capitalized and depreciated in the first year, does the owner have to do an amended return
anyway so the Schedule C can be redone, and the 2010 taxes redone? If so, is the $6900 recorded as a capital gain?
Just to let you know, the taxes for 2011 or 2012 have not been filed, so before I can move forward, I really need to solve this problem, fix it and move on so the rest of the years can be done correctly. This one is over my head. Can anyone help?