Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

S Corp Taxation

Customer Question
If my S-Corp owes a...
If my S-Corp owes a creditor $1.5M and I negotiate a settlement with him where I give him $500,000 and we cancel the remaining $1M of debt - what are the Tax implications to me and to the creditor?
Submitted: 13 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 34 minutes by:
10/13/2004
Tax Professional: Jon Andrews, Certified Public Accountant (CPA) replied 13 years ago
Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3,118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Verified
This is a situation that I have dealt with on several occasions. However, I am not willing to post the information publicly for someone who has not yet made their deposit with ExpertAsk. If you make your deposit, I will follow up with you until you are comfortable with the response.

Thanks, [email protected]
Ask Your Own Tax Question
Tax Professional: Jon Andrews, Certified Public Accountant (CPA) replied 13 years ago
Tax implications for you:
The cancellation of debt (COD) income will be a separately stated item on your K-1. Normally, when an S Corp has inside debt in excess of the value of hard assets, it (the S Corp) has generated tax losses that the shareholder has not been able to deduct due to the "At-Risk Limitations". If that is the case for you, the COD income will create basis allowing you to deduct previously suspended losses and should not give rise to any actual net taxable income at the personal level because those losses will offset the the COD income. If you do not have suspended losses, your next best approach is the "personal insolvency" test. To the extent that you are insolvent (liabilities exceed asset value) at the personal level, the COD is not taxable to you. If neither of those two situations applies to your case, let me know and we can explore other options.

Tax implications to the creditor:
If the creditor is in the business of lending money, i.e. a bank, etc, they will have a business bad debt in the amount of $1,000,000 that will be a deduction for them. If the creditor is not in the business of lending money, they likely will have a non-business bad debt which is treated as a short-term capital loss. Depending on their specific situation, this could be a problem since capital losses have limitations on deductibility.

If you need further clarification or want to provide additional details for more specific answers, please let me know.
[email protected]

Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3,118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Verified
Jon Andrews and 87 other Tax Specialists are ready to help you
Ask your own question now
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Jon Andrews Your Own Question
Jon Andrews
Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3,118
3,118 Satisfied Customers
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.

Jon Andrews is online now

A new question is answered every 9 seconds

How JustAnswer works:

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

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.WMatteson, 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.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, 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.

OrvilleHesperia, 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!!!!

AlexLos 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.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
We have a car that is out for repossession. I am trying to
We have a car that is out for repossession. I am trying to find out it there is anything I can do before they take it to see if they will waive the amount owed after auction. I know it will be conside… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
My son has a past due debt to Discover in of $6,352.
My son has a past due debt to Discover in amt of $6,352. Discover evidently has retained GuglielmonAssoc ( in Tucson AZ) to negotiate. Settlement. Discover remains the current creditor. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
If I buy a person or persons debt, can I simply ask for a
If I buy a person or persons debt, can I simply ask for a service fee and relinquish their said debt without tax consequences to me (company) or them? I am aware that if they pay the debt they can inc… read more
socrateaser
socrateaser
1,452 satisfied customers
Sold my company which is an s corp. the buyer assumed the
sold my company which is an s corp. the buyer assumed the payable, which were 2.5 m my accountant tells me that i will have to claim these payable as added income. which i cannot afford to pay the tax… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,328 satisfied customers
This year I had a cancellation of a debt but have not
This year I had a cancellation of a debt but have not received a form 1099-c. … read more
socrateaser
socrateaser
1,452 satisfied customers
Taxes: 1099-C Can you negotiate the 1099-C when trying for
Taxes: 1099-C Can you negotiate the 1099-C when trying for a settlement on a credit card debt? Everything I read about it , says the creditor "may or could" give a 1099-C when you settle. The 1099-C i… read more
fastfile
fastfile
Tax Advisor
Master's Degree
550 satisfied customers
I filed for Chapter 7 bankruptcy in 2010, and my debts were
I filed for Chapter 7 bankruptcy in 2010, and my debts were discharged in 2011. The bankruptcy was filed for business reasons: I own 80% of a then-failing S-Corp, which remains operational. The S-corp… read more
Jax Tax
Jax Tax
Senior Tax Attorney
Master\u0027s Degree
1,394 satisfied customers
I have a small dental practice. I have several patients that
I have a small dental practice. I have several patients that have not paid large dental bills. Collection activity has failed. I have decided to write off this debt. Can i forgive the debt and issue a… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
I use H and R home tax preparation software. I just received
I use H and R home tax preparation software. I just received a letter from the IRs. In February I Negotiated a payoff settlement with Bank of America, They quoted me a payoff amount , all agreed the d… read more
wm030303
wm030303
Partner
Bachelor's Degree
110 satisfied customers
Hi there...May I ask what year is forgiven debt become taxable
Hi there...May I ask what year is forgiven debt become taxable? If a credit card account is settle & creditor offer a final settlement letter that the account is pay in full, then do we have to pay th… read more
Marvin,EA
Marvin,EA
Enrolled Agent
Bachelor\u0027s Degree
1,663 satisfied customers
My ex-husband and I are owners of an S corp with an NOL. We
My ex-husband and I are owners of an S corp with an NOL. We equally went into debt to fund equipment needed by the S Corporation out of each of our personal funds. Now I find out he has claimed the fu… read more
Law Pro
Law Pro
Doctoral Degree
19,000 satisfied customers
I negotiated about 90K of credit card debt and short sold my
I negotiated about 90K of credit card debt and short sold my house in 2010. The majority of the cards were settled in the month before the housed closed escrow. I owed 400K on the house and sold it fo… read more
Wendy Reed
Wendy Reed
Master Tax Advisor Enrolled Agent
Master\u0027s Degree
3,197 satisfied customers
My husband and I took out a 1st and 2nd mortgage for an investment
My husband and I took out a 1st and 2nd mortgage for an investment home. The home went into foreclosure. The bank divided the loan into 2 loans 1st and 2nd mortgage so we would have the down payment f… read more
Ellen
Ellen
Attorney
Doctoral Degree
649 satisfied customers
If a home is forclosed on and the property is sold for less
If a home is forclosed on and the property is sold for less than the balance owed on the mortgage, what happens to the remaining balance? Example: The mortgage balance is $165,000 and the property sel… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
We sold our house in October in a short sale (headed to foreclosure),
We sold our house in October in a short sale (headed to foreclosure), now we have received a 1099-C, It has a very large Number in box 2 for debt canceled, What do we have to do and is it going to hur… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
What are my tax implications if my second mortgage company
What are my tax implications if my second mortgage company is offering me a settlement of $4800 on a $60000 loan that I have not payed on for 6 months?… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
I am relocating for new employment, my home is underwater by
I am relocating for new employment, my home is underwater by 250,000 my employer will as part of my sign on contract give me the 250,000 to payoff the debt but I will be responsible for the taxes on t… read more
Lev
Lev
Retired
Bachelor\u0027s Degree Equivalent
27,134 satisfied customers
I am in the process of a Debt settlement Plan with the Bussiness
I am in the process of a Debt settlement Plan with the Bussiness "CuraDebt". I am in a bind and they are going to negotiate a settlement with each of my unsecure creditors (Credit card debt of 30,000)… read more
Ed Johnson
Ed Johnson
Senior HR Consultant and Business Devlpm
Bachelor's Degree
6,994 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x