clearing negative PIC
Is there a way to clear a negative additional paid in capital account? This account was created when the S Corp was formed from a sole proprietorship.
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arLCnMOXur3RjjacfA8pyY
09/16/09 4:05pm PDT
Viewed by asker 09/17/09 8:35am PDT
Viewed by asker 09/17/09 8:35am PDT
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PhoebeRoberts
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Don't forget your statement under Sec 351, showing what the proprietor contributed in exchange for stock.
If the liabilities contributed exceeded the assets contributed (which is what I think must have happened in order to have a debit-balance equity account), and the liabilities were really assumed by the corporation, the shareholder has income - a deemed distribution in excess of basis (or maybe COD income - I've never had to know for sure). In that case, I'd show the debit balance as negative retained earnings, not PIC.
The time-honored way of fixing that is by booking the debit as an asset - Due From Shareholder. If it's under $10k, no need to impute interest, and in most cases, the shareholder is really still on the hook for the debt, so will either repay it (a credit to Due From Shareholder) or the business will be profitable (in which case, it can be repaid via distribution).
Also, that return was due yesterday, was it not?
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