Discussion:Built in Gains Tax
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Discussion Forum Index --> Advanced Tax Questions --> Built in Gains Tax
Discussion Forum Index --> Tax Questions --> Built in Gains Tax
| 6 June 2008 | |
| I work for a consulting company that routinely sells owners of C Corporations on a plan of reorganization that I believe has BIG tax implications and no way out of it other than not selling anything for 10 years or having a loss for 10 years.
Most basic reorganization (with a C Corp with 1 100% owner) is to form a separate management (managing services to the original C Corp) company as a C Corp (this has no BIG implications that I am aware of). Form a new Corporation as a S Corp and have it be a leasing company to the original C Corp. Have the original C Corp elect to be taxed as an S Corp and become a QSSS Sub of the leasing company and file a joint tax return and I believe all the original C Corp stock ownership goes to the new S Corp leasing company. Ideally, the original C Corp gives its fixed assets to the S Corp (most companies do not get this literally done)to lease back to the original C Corp, now QSSS Sub. I believe BIG tax applies here both to the C Corp that became an S Corp and any assets that the new parent S Corp gets from the sub and would at least have to evaluate unrecognised gains and if original C Corp had inventory would owe BIG tax. Others believe this is a non taxable Sec 351 reorganization and nothing has to be done except notify the IRS of the 351 reorganization. Could someone tell me what is correct. | |
RoyDaleOne (talk|edits) said: | 6 June 2008 |
| Is that the best they can do? | |
| June 6, 2008 | |
| Unless the new corporation has a legitimate business purpose, what you have described doesn't work. And if the business purpose is just a sham management company set up to bypass BIG, I doubt seriously it would satisfy the IRS scrutiny of the transaction. | |
| 6 June 2008 | |
| When making the QSub election, the old corp is treated as if it liquidated into the new S Corp. I don't think that triggers the BIG immediately, it should be exempt under 332. It is just a 351 reorg. But when the new S Corp sells the asset it now owns, yes, that would trigger BIG. How could it not? | |
