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MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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I formed an S Corp ( on Sep 2007. The company

Resolved Question:

I formed an S Corp ( on Sep 2007. The company never generated any revenue and had a loss in the prev 3 returns. I now plan to dissolve the S Corp. Will I be able to deduct the losses from the S Corp investment in this years return?
Submitted: 6 years ago.
Category: Tax
Expert:  MequonCPA replied 6 years ago.
Hi -

You should have been allocated the losses from each year's return on a K-1 that should have been reported on your personal returns in those years. Your basis in your interest would have been reduced each year by the amount of the losses. If you have remaining basis and will will not receive assets that meet or exceed your adjusted basis on liquidation you may have a loss for the remaining amount.
Customer: replied 6 years ago.
I have been deducting the losses on K1 each of the past 3 years. The re are losses this year too which the liquidation will not cover. My question is, would the Hobby loss rule prevent me from deducting this year's loss.
Expert:  MequonCPA replied 6 years ago.
The IRS presumes that you are in business to make a profit if you have net income in at least three out of five years.

The reverse is not necessarily true. Thus if you turn a loss for four years in a row, it doesn't necessarily mean that your activity is a hobby. The reality is that it is a facts and circumstances test.

We're you actively engaged in making the business grow by spending substantial time on the business. Was there as legitimate profit motive. Did you maintain complete and accurate books and records. Did you have prior experience in the business. Did profit motive outweigh personal pleasure associated with the activity. Etc.

Each case stands on its own and must be determined based on the facts and circumstances. The current economy could also be a legitimate reason that the income presumption has not been met.
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Customer: replied 6 years ago.
Thanks for the response.
Also is it necessary that I sell all the assets while dissolving the S Corp, or can I just use the market value.