Discussion:Corp Liquidation
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Discussion Forum Index --> Basic Tax Questions --> Corp Liquidation
Discussion Forum Index --> Tax Questions --> Corp Liquidation
| 12 November 2007 | |
| So i have a client and he wants out of his business. He owns land that he can sale and he also owns other property such as inventory. He has a buyer for the land. What are his best options to save tax?
He is the sole shareholder of his corporation. I've considered selling the land from the corporation and liquidating the corp and then selling after holding the assets for a year. Any help would be much appreciated. | |
| November 12, 2007 | |
| An important question from Katie. But I don't think from the few facts given that it's going to matter much with what you're thinking. When you sell the land, you'll recognize cap gains either at the flowed thru individual level from the S, or at the C level. When you sell the inventory, you'll recognize ordinary income as well. There's nothing to hold for a year. Now, IF you could sell the corp itself, then you have one layer of cap gains on the whole deal, but no buyer in his right mind would buy a corp with RE in it unless there's a heavy discount on the price. Seek a buyer not in his right mind and without professional counsel of any kind. | |
Corptaxhelp (talk|edits) said: | November 13, 2007 |
| Brian, what is his basis in the land? What is his basis in the inventory? What are the fair market values for each? When you say 'land', do you mean 'dirt' or is there also a structure involved? What is he going to do the proceeds of the sale? Does the company have any liabilities that may concern a potential suitor? Is the inventory a significant portion of the company's assets? Have the buyer been pitched the idea of acquiring the entire company? Given the current lending markets, is the buyer able to get financing for the real estate transaction? Given the lower cost of a stock transaction, is a stock transaction more likely to close?
JR1: As a buyer, real estate inside a c-corp often makes me tingle in a good way. You gotta get past the conventional wisdom of fear, uncertainty and doubt. In every case in which I have been involved, the buyer improved his cash flow by buying the corporation instead of the underlying real estate. Further, in every case, the seller walked away with more money after taxes than he would have if he had sold the asset and closed the c-corp. This isn't a transaction you want to walk into blindly but it also isn't something you should dismiss out of hand. There is a way for everyone to walk away happy and with money in their pockets. (Of course, the best way to avoid this entire discussion is not to put real estate inside corporations to begin with.) | |
