You are here:

Tax Law (Questions About Taxes)/Deemed revenue or deemed gifts?


QUESTION: My family's ancestral home is now owned by our family corporation, the shareholders of which include many of my cousins and four of my still-living Aunts.  Last year, two of the aunts (both of them shareholders of course) contributed $100,000 for the restoration and renovation of the original home and other buildings on the premises.  The question is: did this create a taxable event?  A cousin of mine is concerned that this might be a
"deemed gift" or "deemed revenue".  What is that?  By the way, we currently operate as an S Corp.  Thanks!

ANSWER: wow. have you royally screwed up.

who prepares the taxes for the s corp?  for you individually?  

what else goes on in the family corporation?  

do you actually run a business too or just investment stuff or just the house?

where are you located (state)


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

QUESTION: My aunt does the taxes for the corp and Turbo Tax does mine.  This is not a business and exists for the sole purpose of keeping the property in good repair and passing the ownership down from generation to generation in an orderly manner.  We have investments in CDs only but very little revenue.  Usually show a loss.

I have been told that the money invested by my aunts into the corp is a contribution of capital and is not taxable.  The contributing shareholders may also take a step-up in cost basis as well.  Is this right?

ANSWER: yes. it is a contribution to capital. but there no reason to have in s corp.  other ways to do it.    did they get more shares? change of ownership percentages?  payment back of the money via losses over time?

who is active in the operation of the entity?  

assumes you dont rent the property?  also, that it is in a resort or vacation location ?  

or you just keep the old iowa farm house in a corp for fun?  

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

QUESTION: Contributing shareholders did not receive more shares.  Will not receive payment back over time.  No one is active in the operation of the entity.  We all pitch in to help take care of the place.  Don't rent it out and not in a resort location.  In the State of Arkansas.

We started out as a C corp in 1978 but changed to S corp some years ago.

there really is no provision for additional capital without additional shares in an s corp.  it should be structured as a loan.    but at the end of the day, there really is no business purpose either...  I would think the IRS would actually disallow all losses anyway.  

you could leave it in the corporation, but I would file as inactive or just offset the income to get back to zero and not below.  (google "IRS SECTION 195 HOBBY LOSSES").  If you cant or arent trying to make a profit, you cant deduct losses.  

A trust would be just as easy to administer.  and no annual costs or filing fees.  

I grew up in missery.  not too far from you; hot springs is one of my favorite places of all time  :)

so, everyone gets a k1 with nominal losses (maintenance/repairs, and insurance and property taxes).  do you depreciate it (hope not).  

what do you call the corporation?  a real estate investment corp?  capital investment company? holding company?  not real estate management...  ?  

Tax Law (Questions About Taxes)

All Answers

Answers by Expert:

Ask Experts




Tax and general business including hospitality related (hotel mgmt degree and experience in industry prior to obtaining ms tax and cpa).


19 years cpa. ms tax. NOTE: My discussions are only a general information and do not constitute tax advise without entering into a specific agreement and executing an engagement letter; This free chat is nothing more than general information and should not be construed as tax advice nor does my response or replies imply an agreement to provide client specific advice or other guidance for purposes of avoiding IRS tax or penalties and should not be relied upon without your own validation and confirmation of the how the discussion may fit your facts... Not having all the facts and/or not having a direct client relationship prevents me from providing the most accurate replies as possible and I highly suggest using a local CPA to provide you with written advice and guidance. Taking matters into your own hands is much akin to trying to land an airplane without a license. It is easy to FLY a plane, but LANDING is when critical experience is key. In short, caveat emptor; do your homework and don't just rely on free chat board advice anywhere, anytime.

AICPA, CSCPA (Ct society), National Tax,

a bunch.

MS tax and other post graduate coursework

Awards and Honors
variety including Summa Cum Laude

Past/Present Clients
I don't disclose or kiss and tell

©2016 All rights reserved.