2019 1099-C received by S Corp.

[Pablo]

1099-C info: Debt description 2 vessels Business Assets. Debtor personally liable. Event Code 6.

I think this will end up as taxable Other Income on 1040.

Trying to see if can somehow be excluded from income. Or included as income on the 1120S itself rather than on the 1040. (If income on 1120S, have P/Y Carry forward loss to apply)

Note the cancelled amount gets entered on 1120S page 3 Sch B 'Other Info'. Don't see where it flows to K-1 to shareholder. Should it be on K-1? Or just enter amount on 1040?

Note the only exclusion from income that would remotely apply is if it's Qualified Real Business Property debt forgiveness. Doesn't look like charter boats fall under this category.

Any ideas?

Thanks.

[sjrcpa]

insolvency?

[sjrcpa]

If the 1099-C is issued to the S Corp, it does belong on the 1120S.

[Pablo]

No  but thank you

[Pablo]

So no need to enter on 1040 and no need to have on S Corps K-1 to S/H.

And could use prior years carryforward losses to offset the 1099-C taxable income?

Thank you

[Pablo]

P.S. do you agree that vessels (although business assets), wouldn't qualify as Real Property?

[sjrcpa]

Yes

[sjrcpa]

What kind of prior year carryforward losses would an S Corp have?

[Pablo]

thanks for verifying about my Qualified real biz property.

[Pablo]

Maybe I used wrong terminology. S Corp has Suspended P/Y losses.

Mostly brought about by losses from operations. Mostly bunch of years in which mortgage interest and depreciation exceeded revenues. Except for 2019, S corp income in positive territory last few years and moving forward. Not sure if this addresses your question.  

Thank you

Charlie Allnut

[sjrcpa · Accepted solution]

S Corp losses pass thru to the shareholders on their K-1s.  They may be suspended at the shareholder level due to basis limits or passive loss rules. They are not suspended at the S Corp level.

[Pablo]

Yes you are of course correct. I incorrectly took shortcut in my thinking.

I keep track of basis annually at the shareholder level. It's nonpassive.

So 2019 income to be shown on K-1 > 1040 Schedule E. And that's where I'll apply the Suspended loss to offset the income.

Please advise if I am incorrect in my procedure.

One hopefully last question. On K-1, should I include the 1099-C amount lumped together with ordinary business income (actually loss for 2019 Ops). Or put 1099-C amount on Line 10 Other Income.

Thanks so much

[Wendy12x12]

What if 1099-c is received a for an S Corp for which a final return box was checked on 1120S a number of years ago?  May have been an accident, as the business was all but closed then, but for whatever reason, it was marked final.  How to report the income (and hopefully exclude it through insolvency since no assets left and only this debt)?  Presume this is excludable at the S Corp level so no net income/loss passes through k-1 to shareholders?  S Corp apparently not officially dissolved but considered abandoned with state.  TIA!

[sjrcpa]

How was this debt handled on the "final" S corp return?

[wendy12x121]

Sorry, my account and user name somehow messed up by Intuit!  Not sure what you mean?  It’s included on schedule L with no assets.  Also, it turns out the 1099-c is marked personally liable though TP didn’t think so (bank never came after him, was never on his credit report, either).  One thought was to include it on schedule c for shareholders’ returns and also include an other deduction, but if TP was personally liable, is it income to TP?  Thanks in advance!

[sjrcpa]

When  the final 1120S was filed, was the debt cancelled on the corporate books and reported as COD income in that year? Or what was done with the debt in that year?

[wendy12x121]

No, it was not cancelled.  That’s why I think the marking of “final” may have been an actual mistake.  The TP (shareholder) attempted to file a return the next year (doesn’t remember why, but there was no activity in 2013) but it was rejected due to the “final” marking.  The entity was basically abandoned, in 2012, rightly or wrongly, with only this debt still on the books. Now that TP (shareholder) received a 1099-C, not sure what he should do with it (but doesn’t want to ignore it).  The 1099 is marked that the TP was personally liable for the debt, which was news to him.  He said lender (big bank purchased by another big bank prior to abandonment of the entity) never made much attempt to come after him and it NEVER showed on any of his credit reports.  He is looking for original loan docs but doubtful they can be found.  It’s actually two cancellations/1099’s by same lender, total about $30k.  Thanks in advance!

[abmcpa]

Hi, I have a current similar situation.  Was your matter ever resolved?  In my case, the entity is insolvent and filed dissolution for 2021.  There are no consequences because the debt income would be non taxable by reasons of insolvency, except that the bank has not issued a 1099-C yet, or will they?  The debt was to the corp with the shareholder personally liable.  Shareholder is filing bankruptcy also.  As the guarantor, I read that he should not receive a 1099-C, however, no one knows what will be done.  If I file a 2021 final S corp and show it as final and show the COD but later get a 1099-C for a different year, say 2022, what issues would that cause?  Thus, I am curious if your matter was ever resolved.  Thanks.