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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 482
Experience:  Former IRS Revenue Agent
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I inherited a C corporation from my father when he passed

Customer Question

I inherited a C corporation from my father when he passed away in December 2012. My father was the President of the corporation and 100% owner. I was a Director on the corporation but had no ownership. The corporation had no income the last year my father was alive, but it had $250,000 in the bank. In October of 2014, I transferred the money from the corporation checking account to my checking account. Do I owe taxes on that $250,000? If so, what would be the best way to handle it so as not to have to pay taxes at the $250,000 tax bracket? I earn between $46,000 to $50,000 a year. By the way, I have already spent all of the $250,000 on remodeling my 54 year old house. So, if I have to pay taxes on it, I will have to borrow the money or pay it back over time. Your advice will be greatly appreciated.
JA: The Accountant will know how to help. PayPal, Debitcard or credit card are all fine. Is there anything else the Accountant should be aware of?
Customer: Over the years as a director, I would receive $250 per quarter.
Submitted: 9 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 9 months ago.

Hello! My name is***** to JustAnswer. I'm reviewing your question now, and will post back with your reply momentarily.

Expert:  Dr. Fiona Chen replied 9 months ago.

Dear Customer,

There is some work for you to do. You have to go back to all your corporation's record, books, bank statements, accounting records, and tax returns.

It is a very detailed work but probably is not difficult.

Go back as far as possible, year 1, the best.

You want to make sure that these are earnings of the company. Then, you take long-term capital gain, dividend, qualified dividend, on your tax return. It should be on your 2014 tax return, its tax rate is based on your other items on your tax return.

It is also possible funds your father loaned the company, he borrowed from banks, etc. This could be his original investment into the company. Then, taking them out is not a taxable event. This could be his wages he already reported income tax on his tax return. A lot of business owners issue wages to themselves but never withdraw from the bank because they don't need the cash at that time. Or they need to keep the money to make the cash flow for that period of time. Then, later on, they forgot about it. You need to reconcile all the wage the corporation issue to him and how much he actually taken out from the bank as wages.

You want to check the characteristics of every dollar of this 250,000. Think it this way, every dollar you can find that is not an accumulated earning in the company is tax free amount. Verify and keep complete, and good records.

Eventually, you need to close down this company. If you take on the basis your father have on the company when he passed away, and compare it when you close down, you may have some minor loss.

As to your question about how to pay the tax authorities, apply for installment payment plans. Hopefully, because it is long term capital gain, the total tax is not too great.

Please feel free to follow up.



Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

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