Phoebe Roberts, EA <Phoebe[at]cottagesoft.com> wrote:

- quote -

Probably more important than what you might think or I might
think is what the IRS might think. <g
The problem I'm having is that the notion that losses on
personal use assets are NOT deductible seems to be one of
the "bedrock" concepts of our tax code. Therefore, I just
can't "buy" that an S-corp shareholder can use a "form over
substance" argument (I don't own the car, my wholly owned
corporation does...) to avoid that disallowance. <g
But, to your point, I've seen lease valuations go both ways.
Sometimes it looks like a "screw job;" other times it's a
super bargain. In any event, I'm not convinced that it has
any bearing on the loss allowance issue.

MTW

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Harlan Lunsford <lunstax[at]bellsouth.net> wrote:

- quote -

I don't prepare financial statements, so my only concern is
how the numbers appear on the tax return. I compute the
value of personal auto use from the lease value tables,
subtract it from the corporation's auto expenses, and add it
to compensation. Depending on the situation, this amount is
usually "grossed-up" by the related FICA tax. I like the
total amount of compensation reported on the corporate
return to agree with the totals from the W-3 (unless there
is some clearly obvious reason why the two should be
different).

For medical, I do the same. Subtract it from employee
benefits and add it to compensation.

However, I fully concede that there might be other ways to
do this.

MTW

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Michael T Wing CPA wrote:

- quote -

Think of it as offsetting the (probably large) amounts he's
been picking up as personal use of auto. The inclusion
amount using the lease value is considerably at odds with
what would have happen had the client been operating in an
unincorporated mode.

Phoebe

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Michael T Wing CPA wrote:

- quote -

Just had the situation rear it's ugly head earlier this
week. But this was a gain, so it flowed on through via the
4797 of course.

If the loss isn't too great, say less than 500$ total, I
can't see where it's worth it to pro-rate and allocate. But
I do see your point, and agree that what you propose is the
right way to go about it theoretically. So, for a 4000$
loss, at 70% business, I would just report the figures at
70% of their value, with no reference to the 100%.

On another note however, what accounting entry do you make
on the books at year's end to record the personal use? We
post the personal portion to the W-2, and with all other
payroll is recorded the regular way, dr wages; cr taxes and
accrued payroll; and then debit taxes, and credit accrued
taxes. So what's left after debiting all the payroll
checks written is still in accrued payroll the net figure of
officer's imputed income less FICA. How do you handle it?

And do you account for shareholders' health insurance
premiums same way?

Cheer$,
Harlan

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OK, here is my first big dilemma for the season:

Client is sole owner of an S-corp. For the past few years he
has had a company car (owned and paid for by the corp). His
use has been about 70% business, 30% personal. In 2003 he
sold the car at a substantial loss (I guess the "real world"
depreciation was considerably more than the "luxury auto"
amounts allowed for tax purposes). He is basically in the
process of retiring, so no new business vehicle was
purchased.

I have always treated the car as used 100% for business BY
THE CORPORATION. The value of the 30% personal use was
determined from the "lease value" tables, subtracted from
the corporation's actual auto expenses, and added to his W-2
as additional compensation. I believe this treatment to be
appropriate as far as it goes. But, how do I treat the loss
on sale?

If I continue to view this as a 100% business asset at the
corporate level, the shareholder gets a windfall tax benefit
in the form of an apparently deductible loss on the
"personal" portion of the car. This treatment would be
considerably at odds with what would have happen had the
client been operating in an unincorporated mode.

So, should I divide the car into two separate assets at the
time of sale, passing through the loss on the "business"
portion on the K-1, while treating the "personal" portion
loss as a nondeductible expense ??? Or, is no such
allocation necessary ???

MTW

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