Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

i have two inactive sub s companies with significant losses.

they owned dinner cruises that...
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.
Show More
Show Less
Ask Your Own Tax Question
Answered in 15 minutes by:
8/21/2013
USTaxAdvising
Category: Tax
Satisfied Customers: 1,237
Experience: US Taxation specialist.
Verified

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,

Ask Your Own Tax Question
Customer reply replied 4 years 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 reply replied 4 years ago


I forgot to mention that these were previously declared NOLs.

Customer reply replied 4 years 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.

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,

Ask Your Own Tax Question
Hello,

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

Best regards
Ask Your Own Tax Question
Customer reply replied 4 years 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.

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
Category: Tax
Satisfied Customers: 1,237
Experience: US Taxation specialist.
Verified
USTaxAdvising and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 4 years 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.

Ask USTaxAdvising Your Own Question
USTaxAdvising
USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1,237
1,237 Satisfied Customers
Experience: US Taxation specialist.

USTaxAdvising 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

1,300 satisfied customers

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

Richard

Richard

Tax Attorney

4,338 satisfied customers

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

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

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

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 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.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Can an LLC (partnership) pay taxes on income and avoid the
Can an LLC (partnership) pay taxes on income and avoid the partners having to pay the taxes?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Executor signed multiple corporate tax returns as deceased.
executor signed multiple corporate tax returns as deceased. is this legal if he also has power of attorney? there is a will that hasn't been probated in almost 3 years. … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,777 satisfied customers
What form do I use to send realestate capital gains payment.
What form do I use to send realestate capital gains payment … read more
abci168
abci168
Principal
27 satisfied customers
Does the reduction in the Corporate tax return from 35% to
Does the reduction in the Corporate tax return from 35% to 21% apply to Professional Corporation's (i.e. - a dental practice)?… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
60 satisfied customers
On form 1041, capital gains have to be taxed at the estate
On form 1041, capital gains have to be taxed at the estate level, correct? No distribution deduction may be taken?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Lev, I am doing a final corporate tax return for a C
Good evening Lev, I am doing a final corporate tax return for a C corporation and the business had a carryover NOL from prior years. This year was a final year and short year for the 100 percent share… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Penalty for late filing of partnership LLC tax return, not
Penalty for late filing of partnership LLC tax return, not eligible for Rev Proc 84-35 relief because one of the partners is a foriegner… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,777 satisfied customers
My question is about taxation of capital gains on equities,
Hello, My question is about taxation of capital gains on equities, like stocks, options, futures of F1 students. Here the facts:1. F1 student for 4 years in the US2. student does not get any income wi… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
Is income from an LLC passed through to personal tax return
Is income from an LLC passed through to personal tax return considered earned income, enabling me to contribute to a traditional IRA?… read more
abci168
abci168
Principal
27 satisfied customers
I haven't filed a personal return since 2011 tax year. In
Hello. I haven't filed a personal return since 2011 tax year. In 2013, I moved overseas, and didn't return till 2016. Can I just file my back taxes, or must I consult with tax attorney first for any i… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm working to understand capital gains tax for California
I'm working to understand capital gains tax for California property purchased 4 years ago. It's a primary residence, purchased 4 years ago for $385k with $285k principle outstanding. Expected sale price of $630k … read more
abci168
abci168
Principal
27 satisfied customers
For a ny state partnership tax return, if you file an
For a ny state partnership tax return, if you file an extension but don't pay anything and then end up owing a lot. Do they still recognize the extension or do they charge a failure to pay penalty (fo… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have an LLP (limited liability partnership) with an
I have an LLP (limited liability partnership) with an operating agreement that indicates it's organized as a general partnership. I am the designated 'tax matters partner'. The *other* partner is resp… read more
abci168
abci168
Principal
27 satisfied customers
Tax question is there anyway to offset a capital gain of 60
Tax question is there anyway to offset a capital gain of 60 to 70k by buying another commercial property… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I (US person) own 50% in a foreign partnership (real estate
I (US person) own 50% in a foreign partnership (real estate partnership under civil law (GbR) in Germany), the other 50% are held by a none US person. - I have rental income from the foreign partnersh… read more
taxmanrog
taxmanrog
Master\u0027s Degree
763 satisfied customers
Do Florida residents have to pay State capital gains taxes
Do Florida residents have to pay State capital gains taxes on the sale of FL business &/or personal assets?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,777 satisfied customers
Capital Gain - A taxpayer has capital loss (short term and
Capital Gain -A taxpayer has capital loss (short term and long term) carryover from stock sales. He also has loss carryover from rental property.When he sales the rental property, all the rental loss … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 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