Discussion:Assets from a S-corp to a LLC
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Discussion Forum Index --> Advanced Tax Questions --> Assets from a S-corp to a LLC
Discussion Forum Index --> Tax Questions --> Assets from a S-corp to a LLC
| 9 January 2008 | |
| Client wants to transfer some assets from an existing S-corp to a LLC. This will not be a conversion to a LLC as the S-corp will continue to exist. I know in a full conversion the assets must be sold to the shareholders at FMV and then contributed to the LLC in a taxable event but what if they both continue to exist after the transactions? Is this a different scenario and we can somehow use the words transfer instead of liquidate or non-taxable instead of taxable? I am afraid I know the answer to this question already but any help pointing me in the right direction would be greatly appreciated. | |
| 9 January 2008 | |
| Assets come out of corp at FMV regardless of whether corp is liquidated or not. | |
| 9 January 2008 | |
| Only if they come out-out. If you don't mind the corporation being a member (with membership interest of equal FMV), it can contribute them in exchange for a membership interest.
Of course there are other options if the motivation for the switch is something other than tax and the LLC can be taxed as a corporation. | |
| 9 January 2008 | |
| Hi what? how can the corp "contribute them in exchange for a membership interest" and not have the assets be deemed to "come out"? Read some rules on converting from an s corp to llc. JD is correct. You have a taxable event. And without spending a bunch of time I dont see any benefit to having an S corp go to an LLC taxed as a corp. bye | |
| 9 January 2008 | |
| I've read plenty, thanks. There isn't a tax on assets "coming out," the realization event would only be on a distribution of the assets. There is no tax if the corporation contributes property to the non-investment-company partnership in exchange for an interest in the partnership. Sec. 721(a). | |
| 9 January 2008 | |
| Hi read 336/311 C or S you cannot take assets out of a corporation and contrubute to an LLC without triggering tax. 721 doesnt control how you get the assets out of the corp. bye | |
| 9 January 2008 | |
| Dude. Sec. 311 only applies if the corporation is distributing something. Sec. 336 only applies if the corporation liquidates. If the corporation merely contributes assets to the partnership, receiving an interest in the partnership in exchange, it's not distributing anything and it's not liquidating. What part of that do you not understand or agree with? | |
| 9 January 2008 | |
| WesR is one of Aunt Emmys very favorites. I is wonderin if he would be feelin kindly and give his thoughts on whether section 351 and mebbe treasury reg subchapter a section 1.351-1 could be a possible hep to the pore soul whos tryin to figger this out? | |
| 9 January 2008 | |
| LH2004 you is a whippersnapper and do NOT call WesR Dude. Figger it out youself you think you so dam smart. You is on yore own. | |
| 9 January 2008 | |
| Hi aunt emmy kisses and hugs LH really doesnt understand how you can contribute something but somehow it stays in the corp. Maybe he needs to tell us who will own these assets after this is done. Maybe then he will figure it out. Maybe he thinks two entities can own the same asset. bye | |
| 9 January 2008 | |
| You aint the first fella been scairt off by Aunt Emmys delicate beauty. | |
| 9 January 2008 | |
| Ugh. Is this really so hard to understand? The LLC owns the asset. The corporation owns a membership interest in the LLC. The corporation's shareholders continue to own their shares in the corporation and don't receive any cash or property from the corporation, though they may contribute their own cash or property to the LLC. That all is tax-free (assuming you meet the few requirements of sec. 721).
Tax is NOT triggered merely because a corporation ceases to own an asset. Since the fall of the blessed General, it's triggered by a distribution. We don't have one, we just have a contribution. If you are for some reason under the impression that an S corporation can't be a partner, see reg. sec. 1.701-2(d) ex. 2 (which describes one possible motivation for doing exactly what I am describing). I apologize if we are merely having a miscommunication about the sequence of steps I am proposing, but there is nothing the least bit tricky about this. Are you under the impression that a corporation pays tax if it contributes an asset to its own subsidiary? If it exchanges the asset in a transaction qualifying under sec. 1031? In those cases, the corporation also ceases to own an asset, possibly appreciated, and pays no tax. | |
Phil Moody (talk|edits) said: | 9 January 2008 |
| I agree with LH2004. This has been done for years. | |
| 9 January 2008 | |
| Dude. You gittin on Aunt Emmys nerves. Read Section 351 and see if that hep you cuz sounds like thats what yer fumblin around and tryin to do. Do what Aunt Emmy tell you. Dont sass and keep the blessed General outta this. | |
| 9 January 2008 | |
| Sec. 351 is for contributions to corporations. Sec. 721 is for contributions to partnerships, and isn't as picky about who contributes. Either one will work here, depending on whether the LLC is a corporation or a partnership. But I assume we want it to be a partnership. Either way, the contributing corporation does not realize a gain. | |
| 9 January 2008 | |
| Wes, since my comment originally triggered all this controversy I thought I would weigh in again, although sitting on the sidelines watching has been fun. My answer was assuming the S corp s/h's were removing assets from the corp to be put into a new partnership/llc which the s/h's would be partners/members in. But when I read LH's response I thought it was correct, but I had not taken the time to address that issue. Without looking up code sections, which you certainly know better than I, I did think that no gain would be triggered when an S corp contributes its own assets in exchange for an interest in a partnership. Are you and LH talking past each other?
Aunt Emmy, I don't think LH is disrespecting you or Wes. Don't you go scarin' him off by threatening to bifurcate his behind like you did me awhile back. | |
| 9 January 2008 | |
| Hi JD you started this :) I understand LH rational but right now it just doesnt smell right and I need to get something done. bye | |
