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Abandon S Corporation Stock

Corporate Law Discussions

Abandon S Corporation Stock

Postby taillefer » Sun Dec 04, 2016 6:41 pm

s About Taxes)/abandon S corporation stock Advertisement Expert: John Stancil, CPA - 6/29/2011 I am the owner of a small s-corporation. The corporation had 3 members and 1 of them abandoned their stock. We usually had an accountant prepare the taxes but dont have the money to do so any more. I need to know what adjustments to the 1120s return might i need to make. I understand about how to allocate the business losses to the k1's as the stock was abandoned part way through the year. What i don't know is do I need to make an adjustment to the corporations book similar to what i see out accountant did for an llc when a member abandoned their interest. In the LLC the capital account was reduced by the members remaining capital account amount and the partnerships property basis was reduced by the same amount.

ANSWER: Aaron,

Thanks for your question.

Since you did not distribute any assets when the stock was abandoned you do not reduce the property basis.  You would zero out the owner's capital account, with an offsetting entry to paid in capital.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

I also got a reply from another expert in your forumn. I was amazed at how fast you replied. Thanks. I am still a little confused as he was saying that you can not abandon the shares in a s corporation but would have to sell them back to the corporation for a token amount say $1. When you say you zero out the owners capital acount do you mean that I reduce it by the total amount of capital they contributed to the s corporation? What would the entries be in the GAAP books? Also how would you calculate the loss on the individuals tax return that abandoned their stock? Would it be their basis in the company at the time they abandoned their stock? Thanks for your help.
taillefer
 
Posts: 59
Joined: Sat Apr 02, 2011 7:05 am

Abandon S Corporation Stock

Postby Bernhold » Thu Dec 08, 2016 8:17 pm

s About Taxes)/abandon S corporation stock Advertisement Expert: John Stancil, CPA - 6/29/2011 I am the owner of a small s-corporation. The corporation had 3 members and 1 of them abandoned their stock. We usually had an accountant prepare the taxes but dont have the money to do so any more. I need to know what adjustments to the 1120s return might i need to make. I understand about how to allocate the business losses to the k1's as the stock was abandoned part way through the year. What i don't know is do I need to make an adjustment to the corporations book similar to what i see out accountant did for an llc when a member abandoned their interest. In the LLC the capital account was reduced by the members remaining capital account amount and the partnerships property basis was reduced by the same amount.

ANSWER: Aaron,

Thanks for your question.

Since you did not distribute any assets when the stock was abandoned you do not reduce the property basis.  You would zero out the owner's capital account, with an offsetting entry to paid in capital.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

I also got a reply from another expert in your forumn. I was amazed at how fast you replied. Thanks. I am still a little confused as he was saying that you can not abandon the shares in a s corporation but would have to sell them back to the corporation for a token amount say $1. When you say you zero out the owners capital acount do you mean that I reduce it by the total amount of capital they contributed to the s corporation? What would the entries be in the GAAP books? Also how would you calculate the loss on the individuals tax return that abandoned their stock? Would it be their basis in the company at the time they abandoned their stock? Thanks for your help.
Bernhold
 
Posts: 47
Joined: Fri Feb 21, 2014 6:30 am

Abandon S Corporation Stock

Postby Artus » Tue Dec 13, 2016 6:03 am

Aaron,

Technically, you can't abandon the stock.  But how can you prevent someone from walking away or from giving it to the corporation?

What I mean is that you take the owner's capital account to a zero balance.  On the books, same thing. Debit the account, credit a paid in capital account.

The individual has a loss of the amount of his investment in the stock(which may not be the same as the amount reflected on the company books). John Stancil, CPA
Artus
 
Posts: 39
Joined: Thu Jan 02, 2014 12:33 pm


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