Question:
A new client, who will come in next week, has started a
business with the help of the Bureau of Vocational
Rehabilitation. This help included buying equipment for her.
The procedure was to give her the money, tell her to buy it,
get it into BVR's name somehow, lease it to her (though she
in fact never paid any rent for it), and then give it back
to her when she completed their program. Since all this
happened in 1998, she wondered what the tax implications
were.
It sounds to me as if the equipment is simply a gift from
the government, not taxable income. She has no basis in it,
so she can't take depreciation on it, or 179 it. If she ever
sells it, with no basis, all the proceeds are taxable
income. (Or is her basis the donor-government's basis?)
How does this sound to other tax pros? Has anybody had
clients who'd received BVR help? Does the procedure my
client described (as best I understood it) sound typical?
Are there questions I need to ask, form numbers that the
client and I should expect to see from BVR, any other issues
that ex-BVR clients as entrepreneurs need to discuss with
their tax preparers?
Answer:
It looks to me like a loan, followed by a gift, neither of
which have any tax implications for your client. Of course
she will need to file the appropriate business form.
