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I need a tax expert letter for a court case to explain the

possible value of loss in...
I need a tax expert letter for a court case to explain the possible value of loss in and s-corp. I am a 10 percent shareholder in an s-corp and have never received any k-1s i know significant losses were claimed for 2011 and and 2012.
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Answered in 1 minute by:
8/24/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor :

Hi, Can you help me underand a little more?

NPVAdvisor :

What kind of ce are we talking about ... tax court, a creditor judgment, divorce? ... If you can give me some detail, we can go from there

Customer:

It is a civil action over a shareholder aggreement and i am try to show that i have been denyed the benit of my 10percent of the losses

NPVAdvisor :

OK, were the K-1s aimply not done? ... not provided? or done incorrectly? also, what was the gist of the shareholder agreement?

Customer:

no the claimed themselves as the sole shareholder is is a spa business i helped setup for a 10 percent share and then i was locked out

NPVAdvisor :

DO you have a copy of the signed agreement? Also, what kind of corporation? Your state will have rules (statutes, laws) that prescribe how shareholders acquire shares, based on whether it's an S-Corp, C-corp, LLC, etc.

NPVAdvisor :

If they didn't follow the rules for issuing shares that may be on of your first strategies

Customer:

It is an s-corp the agreement is signed they do not dispute i am a 10 percent shareholder

NPVAdvisor :

Ok that makes it very simple.... For S-corps (ALL S-corps) profits (and losses) MUST be distributed in proportion the % of ownership

NPVAdvisor :

LLC's and partnerhips can do it differently, but for LLCs this is an IRS rule

NPVAdvisor :

sorry, for S-Corps, this is a rule

Customer:

understood and that is before the court the question is I need an experts letter showing the way i could benefit from the loss which should have been passed through to me. this is also to show that there was a violation of the shareholders aggreement

NPVAdvisor :

S corporation shareholders can,under the right circumstances deduct corporate losses on their 1040s. But one of the “right circumstances” is that the shareholder has to have “basis” in their S corporation stock. Basis starts with your investment in the corporation, and it is increased by capital contributions and your share of S corporation income. It is reduced by losses and distributions — even if you don’t bother to deduct them on your 1040.

NPVAdvisor :

Do you have basis?

Customer:

I get that and my only current basis is the i was awarded the shares in lue of compensation for expert work setting up the business

Customer:

I also understand thay any loss i could not use would be carried forward

Customer:

Private Letter Ruling(NNN) NNN-NNNNvalue of shares as compensation

NPVAdvisor :

Just a second let me look at something ... New ork State right?

Customer:

yes

NPVAdvisor :

What provides an S corporation shareholder with at-risk basis?


Contributions to capital of the corporation.


 


Unencumbered funds lent by the share holder or funds borrowed by the shareholder for use in the corporation’s activities. Section 465(b)(2) holds that a shareholder is at risk with respect to borrowed amounts only if the shareholder is personally liable for repayment (in other words, it is a recourse obligation).


 


Monies borrowed by the shareholder and then lent to the corporation for use in the corporation’s activities, where the shareholder has borrowed the funds on a nonrecourse basis, as long as the shareholder has pledged property (other than that used in the activity) as security for the borrowed amount. In the case of nonrecourse borrowings secured by pledged property, the at-risk amount is limited to the net fair market value of the taxpayer’s interest in the pledged property. The S corporation stock is considered to be “property used in the activity,” meaning that a shareholder isnot considered at risk for amounts contributed or loaned to an S corporation when the amounts were obtained by nonrecourse borrowings secured by the corporation’s stock. See General Explanation of the Tax Reform Act of 1976 (the “Committee Report”), prepared by the staff of the Joint Committee on Taxation (HR 10612, PL 94-455).


 


Loans secured by real property used in the activity of holding real property. This is similar to the “qualified nonrecourse debt” analysis that allows partners to be at risk in partnerships. See Treas. Reg. § 1.465-27.


 


Shares received as compensation, equal to the value of the S corporation stock received. See Private Letter Ruling(NNN) NNN-NNNN


 


Similar to the basis rules for S corporations, shareholders are not at risk for any amounts they guarantee on behalf of the corporation. Further, amounts are generally not considered at risk if borrowed from a person who has an interest (other than as a creditor) in the activity (section 465(b)(3)). However, shareholders may increase their at-risk basis by borrowing from a family member, as long as the debt is recourse and the family member is not a shareholder as well (Treas. Reg. § 1.465-8(a)(1)).


 

NPVAdvisor :

Shares received as compensation, equal to the value of the S corporation stock received. See Private Letter Ruling(NNN) NNN-NNNN

NPVAdvisor :

You're there

NPVAdvisor :

Now, it's against the TOS (terms of service of this site) to actually do letters, specific work that would invalidate the anonymity here, BUT is you take this article to ANY CPA this is pretty clear cut

Customer:

Yes i saw that that my goal in not to establish a basis as much as to show that there is present of future value to the loss which was not allocated to me

NPVAdvisor :

Exactly, what you have (essentially since there IS a basis allowed) is a NOL (Net operating loss) ... which can be taken against regular income (not below zero) but then carried forward up to 20 years

Customer:

Ok thanks the problem is that the court has basically assumed that the loss would mean nothing to me and i have an uphill battle to show there is value how do i find an expert tax attorney who can do a letter for me.

NPVAdvisor :

Tax attorneys must have a Juris Doctor (J.D.) degree and must be admitted to the state bar. Those are the minimum requirements for practicing law. Additionally, tax attorneys should have advanced training in tax law. Most will have a master of laws (LL.M.) degree in taxation.


Some tax attorneys also have a background in accounting. If you are facing a complex accounting as well as legal matter, you might want to looking for an attorney who is also a Certified Public Accountant.


 


Questions to ask



  • Is the attorney admitted to the state bar?

  • What does the tax attorney specialize in?

  • How much does the attorney charge?

  • Can the attorney help you with your tax case?

  • If not, can the attorney refer you to another tax attorney who can help you?


 


Free and Low Cost Legal Assistance


Tax clinics throughout the United States provide free or low-cost legal assistance to qualifying taxpayers. Tax clinics are funded by the National Taxpayer Advocate. You can find a complete list of tax clinics in IRS Publication 4134 (PDF file, 4 pages).

NPVAdvisor :

NY tx attorneys

Customer:

ok thanks a lot

NPVAdvisor :

Here's an excellent place to start: http://lawyers.findlaw.com/lawyer/practicestate/Taxation-Law/New-York

NPVAdvisor :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

NPVAdvisor :

Let me know if you have more questions

NPVAdvisor :

Lane

NPVAdvisor :

you should be able to rate no

NPVAdvisor :

Thanks so much!

NPVAdvisor :

"now"

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now


Hi Robert,

Good luck with everything.

It sounds like you have your arms around it

let me know if I can help further

Lane
Ask Your Own Tax Question
Thanks again for the rating!

Good Luck!

Lane
Ask Your Own Tax Question
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,877
12,877 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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