Discussion:Section 351 Transfer to S Corp - Accounts Rec'v
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| 20 June 2007 | |
| Hi all,
Have two questions I would like to get thoughts on - Have a sole proprietorship (cash basis) that will form a S Corporation (also to be cash basis)later this year, using a Section 351 transfer. 1) Can the owner transfer over to the S Corp the Accounts Receivables? I know he can if transfering to a C Corp, but not sure to an S Corp. I realize he will have zero basis in the A/R. Obviously wanting the possibilty of avoiding some of the self employment tax on the A/R. 2) If the owner claims a section 179 on a asset purchased during the year (while a sole proprietor), then transfers that asset to the S Corporation later in the year when the section 351 transfer takes place, does this cause any problems? I would assume no recapture of the section 179 would take place, assumming corporation continues to use it? I do see a problem if the owner finances the purchase, as potential zero basis, with a liability transfered over, may trigger gain if liabilities exceed assets transferred. Thanks for any thoughts. | |
| June 20, 2007 | |
| You're ok. Yes, all the assets transfer over, even ones not on the books, and will get treated as usual by the corp. So do the fixed assets, orig cost and accum. deprec. transfer over as is. You'll have some work apportioning things between the Sch. C and the 1120S the first year, but Sec. 179 will go wherever it was used. | |
| 4 August 2007 | |
| Regarding the question #2 above, I have a situation where there is a gain on the assets transferred due to liabilities in excess of basis. In this case, does that gain get reflected on the books as an allocation of the gain to the various assets?
My balance sheet is out of whack when I carryover the assets ,acc. depn, and the liabilities from the former sole prop to the new S Corp. The sole prop balance sheet had an equity section that balanced things out but in the new S Corp this equity does not rollover to the new S Corp BS, right? | |
| 4 August 2007 | |
| I am having a little brain problem this morning. If I have an asset on the books with a cost of $35K, for example, subject to a note for $35K and I transfer in this asset to the S Corp at a FMV of $30K (also transferring in the debt of $35K), what would the book balance sheet look like? Wouldn't I have a $30K asset in the new S Corp with the $35K debt transferred in as a liability? What would be the balancing offset on the books? | |
TheTinCook (talk|edits) said: | 4 August 2007 |
| Well, the first part of your problem is that corporation's basis in the property under Sec 351 is the shareholders adj. basis + gain recognized by the shareholder on contribution. | |
| 4 August 2007 | |
| That's for tax purposes. Perhaps I should have posted this one on the Accounting board. I'm working on the book balance sheet. | |
TheTinCook (talk|edits) said: | 4 August 2007 |
| D'oh! Sorry, my mistake.
Discussion continued here. | |
