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 USTaxAdvising Your Own Question

USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1080
Experience:  US Taxation specialist.
Type Your Tax Question Here...
USTaxAdvising is online now
A new question is answered every 9 seconds

i have two inactive sub s companies with significant losses.

Resolved Question:

i have two inactive sub s companies with significant losses. they owned dinner cruises that were foreclosed because of the actions of an unethical hedge fund. the hedge fund has now been indicted by the sec.
i pay the minimum corporate tax on them each year so they are still open and i am taking the losses up to my basis on my personal return.
i am considering closing them next year when i finalize all of the tax issues that are outstanding.
can i still take the losses up to my basis until it is depleted or am i limited because they then become an investment vs. an ongoing business. one is a delaware and one is a new jersey company and they are both operating in new york state.
Submitted: 10 months ago.
Category: Tax
Expert:  USTaxAdvising replied 10 months ago.

Hello,

Thank you for using justanswer. I can assist you with your questions today.

 

You should be able to take 100% of the portfolio losses in the year of loss. Note that the holding of investments like hedge funds is not a passive activity, it is a portfolio activity and is not governed by the passive activity loss rules. (see the S-corp Schedule K1 instructions here, under Portfolio Income - http://www.irs.gov/instructions/i1120ssk/ch02.html#d0e691)

 

Note though that you are most likely limited to the capital loss rules when you disposed of the partnerships. You are only allowed to deduct up to $3,000 annually of capital losses but you can also apply losses to capital gains. (meaning that the most you can deduct net of capital gains is a $3,000 loss)

 

If you dispose of the S-corps it won't allow you to realize more of the capital losses, they are suspended because of the capital loss limitation and not because of the passive activity limitation.

 

I hope this provides the clarity you were looking for, please let me know if you have any further questions.

 

Best regards,

 

 

 

 

 

Best,

Customer: replied 10 months ago.


these were active businesses and never intended to be passive investments. they only became inactive because of the foreclosure of the dinner cruisers.


should i just keep the companies open as i have been? that was what i was told by a tax attorney previously but now that i am resolving the open tax issues with the state i'm not sure if that would change things.

Customer: replied 10 months ago.


I forgot to mention that these were previously declared NOLs.

Customer: replied 10 months ago.


i think i found the answer on some tax site. it said that NOLs can be carried forward for 20 years unless there was a short year in which it was only six. i had one short year in the mix.

Expert:  USTaxAdvising replied 10 months ago.

Hello Shirley,

 

can i still take the losses up to my basis until it is depleted or am i limited because they then become an investment vs. an ongoing business. - there are really two issues at play here. (1)The investment in the hedge funds would give rise to a capital loss which would be passed through to you 100% through the S-corp, thus the S-corp itself would have no suspended capital losses.

 

I am somewhat confused because you stated the S-corps just held the hedge funds. If that is the case there should be nothing left in the S-corps to give rise to losses. (2) All that would be left would be your holdings of the S-corp stock. When you dispose of the S-corp you can take any losses on the disposal of the s-corp stock but not before you dispose of them. (note that the disposal of the s-corp stock would give rise to capital gain or loss which would be subject to the capital loss limitations)

 

I hope this makes it a little clearer for you. You may have triggered a personal NOL which would be deductible as you mention above.

 

Let me know if you have any further questions on this.

 

Best regards,

Expert:  USTaxAdvising replied 10 months ago.
Hello,

Just following up. Please let me know if I can assist further. Looking forward to hearing from you.

Best regards
Customer: replied 10 months ago.


it's confusing but the hedge fund really had nothing to do with the company. they bought the actual loan on the dinner cruisers from citibank. it may have been an investment from their perspective but we had nothing to do with them from a business perspective. it was like any other finance company owning a loan.


they foreclosed on the dinner cruisers a few years after they acquired the loan for fraudulent reasons. they said the sba wouldn't allow us to sell one of the boats and pay off the loan when we had an all cash deal deposited. the sba later said that was a complete story. they did that to many of the companies whose loans they held and that's why they are being prosecuted by the sec.


our nol came from our business operations not from anything to do with the hedge fund. we were 9/11 victims and the business never really returned because people weren't interested in renting boats after 9/11 at the prices before 9/11 or in many cases at all because of general terrorism fear.

Expert:  USTaxAdvising replied 10 months ago.

Hello Shirley,

 

OK understood. If you liquidate the S-corps then this will give rise to a capital loss (most likely as it sounds as if your basis exceeds any cash you will get). Basically what happens is you return your shares for cash and the S-corp balance sheet closes to zero and files a final tax return.

 

You will experience a capital loss which will be subject to the capital loss limitations.

 

So I think this answers your original question? Please let me know if something is not clear. My apologies for getting this a little long winded...

 

Best regards,

USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1080
Experience: US Taxation specialist.
USTaxAdvising and other Tax Specialists are ready to help you
Customer: replied 10 months ago.


thanks. then i think i'm bettter off paying the minmum corporate tax each year and keeping the companies open until the basis is depleted. that will just be another year or two anyway. that way in case another lien holder shows up it can go against the company.

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.