Discussion:Sec 179 C/O for LLC converting to S-Corp

I have not had this situation, but I believe it would go like this: a "conversion" from LLC or partnership to a corporation is actually a liquidation to members, followed by contribution of all the assets and liabilities into a new corporation, or alternatively, contribution of all the LLC interests into the new corporation, and then ,constructively, by the fact of all interests being owned by one person (the corporation), or by actual actions, the LLC is dissolved and all the LLCs assets and liabilities go to the Corporation.

What is effect of each alternative on suspended sec 179 deductions? I don't know for sure offhand, and will let others verify or correct me.. But, I would guess that the suspended deduction passes through to members (or member) upon dissolution of the LLC.

As I said, when you go from a partnership to a corporation, it is not some magic transformation. I believe you still have to look at the steps required to get there: one of the two methods I mentioned above, with the tax effects of the alternative methods.

Up until last summer sometime, you had to file both. Problem was if you mailed them in at the same time, to two different addresses, per the instructions, you could have problems.

I had a new client who's attorney filed these forms. IRS received the "check the box form" sorry, can't seem to remember the number. IRS granted C Corp status. Before the change got entered into the IRS computer, the 2553 arived at a different IRS office and was denied because the "check the box form" hadn't been filed. Result, C Corp holding real estate.

Because the attorney entered the wrong date, 1-1-04 instead of date of incorporation, 4-1-04, corp status was denied for 2004 because it was late. C Corp went into effect for 2005. You can't unelect "check the box," because it wasn't from inception of the corp. My only recource was to file a late 2553 and get S Corp status when I would much rather have had a 1065.

Reg Sec 1.179-3(f) provides that upon a disposition of property in a tranasaction in which gain or loss is (not recognized).. the basis of such property is increased... by (the amounts of suspended) Sec 179 deductions in respect of which, the property basis was formerly reduced.

It is not specific. I am aware of net operating loss carry overs will be lost

Sec. 1371. Coordination with subchapter C

   (a) Application of subchapter C rules
     Except as otherwise provided in this title, and except to the
   extent inconsistent with this subchapter, subchapter C shall apply
     to an S corporation and its shareholders.
   (b) No carryover between C year and S year
     (1) From C year to S year
       No carryforward, and no carryback, arising for a taxable year
     for which a corporation is a C corporation may be carried to a
     taxable year for which such corporation is an S corporation.
     (2) No carryover from S year
       No carryforward, and no carryback, shall arise at the corporate
     level for a taxable year for which a corporation is an S
     corporation.

"Per Reg Sec. 301.7701-3(g)(1) provides that an election by a partnership to be classified as association (read Corporation) is deemed to have contributed all its assets and liabilities to the (corp) in exchange for stock and (is deemed ) to liquidate and have distributed the stock to its partners. Reg Sec 1.179-3(f) provides that upon a disposition of property in a tranasaction in which gain or loss is (not recognized).. the basis of such property is increased... by (the amounts of suspended) Sec 179 deductions in respect of which, the property basis was formerly reduced" ? Does this infact apply to S-Corps as well as C-Corps?