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How to Deduct Purchase of A/R?

Forum|Forum|2 years ago
April 1, 2024
4 replies
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Medical practice client received a 1099 that includes Accounts Receivable that was purchased. Total amount needs to be reported on 1120S line 1a as gross receipts.

Does anyone have a recommendation as to the best way to deduct the purchased A/R?

Thank you!

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Best answer by sjrcpa

I have loosened my stance on COGS sold for service businesses. It seems that lots of them do it now.

I don't think it really matters where you put it.

@BobKamman They paid for these AR. So while the receipt is Gross Income, they have a cost basis in them to offset the gross.

sjrcpa

Level 15

COGS? Other Deductions?

The more I know the more I don’t know.

T

TaxGirl3Author

Level 5

That's the $140k question. We're amending a return for this, so I'm thinking of optics. COGS for a service business? Other deductions on an amended return?

sjrcpaAnswer

Level 15

I have loosened my stance on COGS sold for service businesses. It seems that lots of them do it now.

I don't think it really matters where you put it.

@BobKamman They paid for these AR. So while the receipt is Gross Income, they have a cost basis in them to offset the gross.

The more I know the more I don’t know.

BobKamman

Level 15

I must be missing something here. Should have taken an accounting course back when I had time. Are they on cash basis? In that case, wouldn't it just be included in gross receipts? Or accrual basis? Why? Is there a reserve for bad debts? Or maybe these instructions help:

How to Record Invoice Factoring Transactions Without Recourse

Record the amount sold as a credit in accounts receivable.
Record the cash received as a debit in the cash account.
Record the paid factoring fee as a debit loss.
Record the amount the factoring company retained in the debit-due account.

qbteachmt

Level 15

The perspective gets a bit lost here: "Medical practice client received a 1099 that includes Accounts Receivable that was purchased."

The person getting a 1099 would be the person selling the AR. They sold their asset.

The people buying the AR bought an intangible asset. As they collect, their Asset value gets reduced. Essentially, it's an intangible inventory at a discount (COGS).

"the best way to deduct the purchased A/R"

The people posting AR as deduction are not the 1099 party. The people collecting the AR have a reduction in their asset (the AR) as they collect income against it, and the cost basis is like a COGS event. AR is more like a goodwill asset, though; not inventory.

It's not factored if it was sold. Factored is leveraged.

Don't yell at us; we're volunteers

T

TaxGirl3Author

Level 5

Thanks.

In this instance, my client is the person who bought the A/R, and my client received a 1099 when the payments came in. We need to report the 1099 amount as revenue to avoid matching issues. Are you suggesting deducting the purchased A/R as Other Costs on Form 1125-A?

BobKamman

Level 15

So the question really asked, "medical practice that was purchased received a 1099 that includes A/R owed to previous owner," not "medical practice received a 1099 that includes A/R that was purchased." A paid B $X for business and the price included $Y for A/R. An account was set up for A with $Y as A/R asset. When C paid the $Y to A, it was charged to that account. I get it.

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