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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 578
Experience:  10 years experience
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I am preparing an 1120s final return de facto insolvent

Customer Question

I am preparing an 1120s final return for a de facto insolvent client. Following is the balance sheet and income statement on tax basis:Liabilities 163,000
Note Payable S/H 170,000
Total Liabilities 333,000Paid in Capital & Stock 114,000
Retained Earnings C Corp (370,000)
Retained Earnings S Corp (135,000)
Distributions to S/H-current year (8,000)
Debts assumed by S/H 77,000
Net Income (11,000)
Total Equity (333,000)Income Statement:
Net Sales 61,000
Gain Form 4797 12,000
Cost of Sales (19,000)
Gross Profit 54,000Expenses (72,000)Net Income b4 M-1 adjustments (18,000)Gain on Assets w/Sec 179--M-1 Adj 7,000
Net Income after Adjustments (11,000)There is no formal plan of insolvency. Franchisor bought two trucks from sub S. Bank repossessed a third truck (12k 4797 gain), the two trucks sold are 7K M-1 adjustment. Client assumed two debts:69,000 to franchisor to be forgiven over a period of 10 years is client meet performance goals, debt is for material.
8,000 to vendor payable by S/H at 500/month until paid.For the S corp, what journal entries need to be recorded to close the books on a tax basis? Any cancellation of debt income? Should the M-1 adjustment be moved to equity section of balance sheet? S/H has zero basis in stock and loans from prior year.Last, how do I report these adjustments on S/H return and what is the gain/loss on S/H basis.
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax, and can assist.

The price offered for the project is low. I will post an Offer of Additional Service to assist. Accept, and I can draft the return for filing.

Customer: replied 1 year ago.
Don't won't you to prepare return. Need second opinion on what I'm doing to reduce research time.
Expert:  PDtax replied 1 year ago.

How do you want to proceed? And how much time do you want from me?