USA Writing off inter company debts upon subsidiary liquidation


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One of our subsidiaries closed out in Oct 2019, After the liquidation process, there are no assets on balance sheet, but only $81,000 equity (100% owned by holding company) and about $13,000 intercompany payable to holding company, debit side, of course, is total of $94,000. what entries should be for holding company? the company had no important activities since 2014 when the company started and have been funded by holding company for some little expenses every year. I understood that the debt should be forgiving, but what about tax consequences by doing this?
 
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kirby

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What composes the $94,000 in debits? Is it negative retained earnings?
 
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Kirby-

Yes, it is negative retained earnings for the past five years- the company had not operation activities in the past years but only some expenses such as rent, local certification fees... my understanding is that the equity has been eroded at the time of liquidation.
 
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kirby

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Close out the sub on the sub's books by debiting the credit accounts and crediting the debit accounts. Net P&L of zero. But first get written confirmation from your legal dept that the sub has been legally closed in the jurisdiction it was in. Parent needs to write off the $13K due from sub acct as well as any investment in sub. You will need your tax dept to figure out the tax accounting entry depending on how they treated the sub over time.
 

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