Discussion:S Corp Problems with Land and Building
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> S Corp Problems with Land and Building
Discussion Forum Index --> Tax Questions --> S Corp Problems with Land and Building
| 2 July 2008 | |
| Where should I start? I have a client (husband & wife) that own 2 S Corps. The first and oldest is owned 100% by the wife. The second is owned 50/50 by husband and wife. They have approached me about eliminating one of the corps to reduce costs. After speaking with the attorney, it was discovered that the prior CPA placed the land and building for both corps on the Corporate books even though they titled both the land and building (and the notes that correspond) personally and intended for them to be outside the corporations for liability purposes. Both corps have been in existence for over 3 years. Now my client realizing that the land and building are listed on the corporations wants them moved to the personal return, along with eliminating one of the corporations. I would like to do this in the most tax advantageous way possible. Please give me your take on this situation. Thanks for your help. Maybe a distribution of the net value of the land, building and note? Also, your thoughts on the tax implications of combining the corporations is appreciated. | |
| July 2, 2008 | |
| As for me, since the legal papers are already correct, merely dropping the buildings out seems like a no brainer. Amending returns would be necessary in order to properly make the payments rent to the Sch. E's...and that's a whole lot better. As to how to combine the corps, I've researched how to merge two S's and never got anything satisfactory. Hoping someone else knows how to do that. Or wait, I was trying to divide an S into two. | |
RoyDaleOne (talk|edits) said: | 3 July 2008 |
| An A reorganization in compliance Section 368 is one way to combine the S Corps. | |
| 3 July 2008 | |
| Doesn't IRS consider an S Corp that is jointly owned by husband and wife to be 100% jointly owned. Similarly, I think an S Corp that is 100% owned by one spouse is considered to have joint ownership. I'm probably missing something, but I'm wondering if that would make it an F reorg. | |
DeacDiggler (talk|edits) said: | 3 July 2008 |
| couldn't you just contribute stock of one S corp to the other in exchange for stock in the parent (B reorg) then make a qsub election for the subsidiary? you'd still have 2 corporations legally, so that may not accomplish the "cost reduction" that you're looking for, but it reduces tax compliance fees. | |
RoyDaleOne (talk|edits) said: | 3 July 2008 |
| I would like to do this in the most tax advantageous way possible.
A tax-free reorganization is one way, however a complete answer to this question is not possible because complete access to the pertinent information is not possible. An F Reorg is not possible when combining two corporations. Diggler points out a B Reorg is possible. | |
DeacDiggler (talk|edits) said: | 3 July 2008 |
| if I form a new S corp and contribute my old S corp stock to it, then make a Qsub election, that's an F reorg even though 2 corps are involved. | |
RoyDaleOne (talk|edits) said: | 3 July 2008 |
| It may an F Reorg, however I would call it:
1. Incorporation of new corporation, New Corporation 2. Section 351 transfer, contribution of old stock to new stock 3. Qsub election, is this considered an F Reorg? | |
Bushmaster (talk|edits) said: | 4 July 2008 |
| merely comboning 2 s corps would be an a reorg if one of them survives. | |
DeacDiggler (talk|edits) said: | 7 July 2008 |
| While it doesn't say WHY this is an F, Rev Rul 2008-18 indicates that the IRS is fine with that conclusion. | |
| 7 July 2008 | |
| Don't get caught up in the details. Go ahead and combine it, and let your accountant work it out later on. | |
RoyDaleOne (talk|edits) said: | 7 July 2008 |
"(F) a mere change in identity, form, or place of organization
of one corporation, however effected; or" Note an F reorganization applies only to one corporation not to two or more corporations. You should think of name change, reincorporation in another State, change in the charter from the State of incorporation. | |
RoyDaleOne (talk|edits) said: | 7 July 2008 |
| Rev Rul 2008-18 holds that when another corporation is used to affect the changes as outlined in the fact pattern of the revenue ruling the IRS will recognize the change as an F reorganization. Even tho there are two corporations used in Rev Rul 2008-18 I find it amazing that the IRS ruled as it did. The same end results is available by the use other code sections. | |
| 8 July 2008 | |
| Thank you all very much. I will continue to research this. As for the land and building, would you just remove them and amend the last three years returns? Taking the notes, land and building and accumulated depreciation at that point? | |
| 21 July 2008 | |
| Trying not to beat a dead horse, but does anyone see any problems with just amending the last 3 years and transferring the notes, land and building and accumulated depreciation at that point? I spoke with a colleague who thought I should show the transfer as a distribution??? Any input is appreciated. Thank you again. | |
| July 21, 2008 | |
| I disagree with your colleague. Distributing them implies that they should have been in the corp, and were indeed in the corp! They should not have been, and legally never were, so therefore, merely correcting them is the right tack. | |
| 22 July 2008 | |
| Thank you so much for your input. This was my instinct, but can not find much on this topic. | |
Southparkcpa (talk|edits) said: | 22 July 2008 |
| I sort of agree with JR!, all this SUB A, SUB F stuff assumes that the building is in the corp. It is NOT. We have a "clerical" preparer error here. The real question is how to get the books right.
As an aside, a client that doesn't know the building is on his tax return is a BAD situation client. They are complaining about fees but they create the mess that creates the fees!!! | |
