1120-S
Donut Corporation is an 1120-S. They have $100,000 of ordinary income. How much income tax do they pay at the 1120-S level.
$0 - 1120-S corporations generally do not have tax liability
This schedule reconciles book income to tax income
M-1
This person has sole authority to act on behalf of the partnership?
Partnership Representative
How does an 1120-S pay self-employment tax
Officers compensation
You notice a decrease in fixed assets year over year on the balance sheet. What other tax Form would we sometimes expect to see.
Form 4797 which reports sales of business assets
Loans from shareholder create what type of basis?
Debt basis
These liabilities increase parter outside basis if the partner is economically liable for repayment.
Recourse liabilities
Who is responsible for paying the tax in a BBA audit
Partnership
What is inside basis
Inside basis refers to the adjusted tax basis of assets held directly by a partnership or S corporation, representing the entity’s cost basis minus depreciation, amortization, or other tax-related adjustments.
What would we be concerned about if loans to shareholder disappears or decreases year over year
Disguised distribution. Was the loan actually repaid by the shareholder?
$25,000 taxable dividend
$25,000 capital gain
What check sheet is required for a 1065 examination
What check sheet is required for a 1120-S examination
Form 15262 - 1065
Form 15261 - 1120-S
$0!!! Under BBA the members do not pay tax in that year. A separate push out election can be made after the examination has concluded.
How do members of 1065s pay self-employment tax?
Guarnateed payments
If accounts payable increases year over year how does that effect the income statement?
Increase in AP increases expense. Did taxpayer actually incur expense?
Debit - Expense
Credit - AP
This account tracks undistributed previously taxed S-Corp Income.
AAA
What document governs an LLC partnership
Operating agreement
Partnership agreements govern general/limited partnerships
How many days do we need allow a BBA partnership to revoke the BBA election, make changes to the PR, or file an AAR after issuing letter 2205-D?
30-days
Why is a BBA 2848 only allow for one year of representation at a time?
You are auditing an 1120-S. You notice accrued payroll on the balance sheet includes bonuses owed to officers but not yet paid until June of the following year. Why is this a problem?
Payment of shareholder bonuses must occur within 2.5 months after year end IRC 267(a)(1) to be deducible in the prior year under the accrual basis method of accounting.
Donut Corporation, an 1120S has 1 shareholder and beginning AAA of $15,000. They have net income of $10,000 during the year. They distribute $50,000 during the year. How is the $50,000 distribution taxed.
$25,000 taxable capital gain
$25,000 non-dividend distribution
A - $10,000 gets $10,000 debt basis from the personal guarantee.
B - $0 - they have basis but are not at risk for the debt
Who is Group 1568s BBA point of contact?
Steven Rowe - We can reach out to him whenever we run into mandatory referrals OR have BBA questions.
Donut Corporation, an 1120-S has one shareholder. The shareholder has basis of $5,000 and debt basis of $50,000. The corporation distributes $10,000 to the shareholder. How much of the distribution is taxable to the shareholder?
$5,000 - distributions first reduce basis and are tax free. Debt basis is only used to take losses not make distributions tax free.
You obtain the accounts payable aging schedule and there are amounts listed on it that have not been paid for over 90 days. What are some questions and the tax effect on net income if those payable are not going to be paid?
The Supreme Court in Hillsboro Nat’l Bank, 460 U.S. 370 (1983), stated:
It has long been accepted that a taxpayer using accrual accounting that accrues and deducts an expense in a tax year before it becomes payable and who for some reason eventually does not have to pay the liability must then take into income the amount of the expense earlier deducted.