A CLIENT TRANSFERRED HIS BUSINESS BACK TO THE LANDLORD WHO TOOK OVER THE A/P AND RECEIVED THE INVENTORY AND FURNISHINGS AND IMPROVEMENTS - HOW TO I RECORD THIS

[lyndaj0331]

This is a store on the boardwalk.  He leased the space.  He was losing money so just turned everything back over to the landlord (who i am sure had another buyer in place).  No funds changed hands; however the buyer took over $217,000 in A/P and received $18,000 in inventory.  How do i record this?

Thank you.

[IRonMaN]

Sounds like he sold all of his assets for $217,000

[abctax55]

What Jeff said, plus he'd have sales of $ 18000 (inventory) 

[BobKamman]

How much did he owe the landlord already?  How much in lease obligations were canceled?  Or are those numbers already included in the $217K?  Look for deductions as carefully as looking for income.  

[lyndaj0331]

He didn't owe the landlord anything.  I do have the depreciation schedule for the prior tax preparer and in 2019 (his first year in business) he had improvements $19,000 and Furniture and Equipment $12,000 that he depreciated in full.  He had the $18,000 in inventory and A/P of $217,000 - everything else is good.  I just am not sure how to show it on the 1120.  If you can help, i would be eternally grateful - this has been a nightmare of a return.  Books were an absolute mess.They also show a balance due the business from his other business in the amount of $150,000 which he tells me is not accurate.  Apparently the prior bookkeeper would make any adjustments to that account.  The other business is to buy and sell real estate and he had no income and chose not to take the expenses (real estate taxes, etc.) as he plans on doing a 1031 exchange with the properties.  My head is spinning on this one.

Thank you

[rbynaker]

What was the tax method of accounting?  Since TCJA, nothing I learned in school regarding inventory is relevant anymore.  I'm guessing that since someone was clueful enough to measure the A/P that the expenses paid with those funds were already deducted somewhere (and now have to be undeducted?)

It's hard to say anymore.  I figure at some point DIYers will all adopt the "QBO" method of accounting, where an AI just automatically categorizes everything in your bank feeds and then sends that data into a tax return.  I'm looking forward to obsolescence.

[TaxGuyBill]

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@lyndaj0331 wrote:

however the buyer took over $217,000 in A/P

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Wait ... the landlord took over $217,000 in Accounts PAYABLE?  So the landlord took over your client's debt?

Is there some value of a customer list or something?

[lyndaj0331]

Yes - I am sure he had another buyer already lined up for the business.  It is a very big business down on the Ocean City Boardwalk.  My client just didn't actively participate and ended up losing business the first, third and fourth years.  So, he made a deal with the landlord to just take the business over and walk away.  It's crazy, I know.  But, how do I record the sale of the business?