At Risk Rules for Interest in a Dental S-Corp Questions

I borrowed X dollars to buy 100% interest in a dental practice. I'm actively involved in running the business. I contributed $0 initially. If I have a loss for the 2010 tax year, am I limited by the at-risk rules?

If you have no basis in the S-Corp you can't take losses. Since you elected to do an S-Corp instead of an LLC, did you at least get the loan in your personal name? Before you ask, a personal guaranty on a loan in a corporation name won't help either.

If the loan is NOT in your name, do you have access to any cash personally you can lend to your corporation to give you basis?

1. The loan is in my personal name. I incorporated 6 months after I purchased the practice.

I think you might be fine then based on this statement, would have to see the details of the "incorporation" in terms of the timing, tax returns, etc.

2. Duh. Can't believe I missed this one. The only cash I had was the cash I had in my sole proprietorship checking account when I incorporated. I created a new checking account when I incorporated and contributed all of the cash-on-hand to the new corporation. This would be my basis, right? What document would I need to provide/create to show this transaction?

Simply the transaction itself. What I mean is if you have a personal checking account showing a transfer of $10,000 and on the same day the corporate account shows a deposit of $10,000 and you have the deposit ticket, you'll be fine on the documentation.

Why did you decide to incorporate 6 months after you purchased the practice?

During the financing phase of the practice acquisition, the bank asked me if I was planning to incorporate prior to funding. When I said "yes," they said that funding would be delayed up to 6 weeks. Time was of the essence, so I decided to move forward as a sole proprietorship.

I waited until the end/beginning of a quarter to incorporate to make payroll taxes, etc. easier to calculate.

Thanks for the info regarding my basis.

Got it. Thanks for the reply. 6 week delay, wow! Looks like it may have worked out as it was.

BTW - not that this applies to you, but for anyone else reading this post in the same or similar situation, if you have access to a personal LOC or HELOC, that's another source of cash to get you basis.

Thanks and right back at ya.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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