Discussion:Contributed Assets from a Sole Proprietor to an S-Corp

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Discussion Forum Index --> Advanced Tax Questions --> Contributed Assets from a Sole Proprietor to an S-Corp


Discussion Forum Index --> Tax Questions --> Contributed Assets from a Sole Proprietor to an S-Corp

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Acctplus2009 (talk|edits) said:

20 March 2012
Hello: I have a client who changed from a sole proprietor to an S-corp. My issue is only what to do with the depreciation assets (no sec. 179) I have read about taking the adjusted basis of the property to the s-corp. But was wondering what to do if there is anything different I should add or do to the schedule C to close out the sole proprietor business?

thank you in advance for your help and advice.

(PS I have read all related articles in the yellow box.)

Ckenefick (talk|edits) said:

20 March 2012
You don't do anything special w/ the Schedule C.

Harry Boscoe (talk|edits) said:

20 March 2012
It's possible that the Schedule C had a set of books - maybe even double-entry books - and that it would be very appropriate to figure out whether and how those books might be adapted for use by the S corporation. The S corp's business is exactly the same as the sole proprietor's, I suspect, except for the "Inc." in the business name.

JR1 (talk|edits) said:

March 20, 2012
The balance sheet just transfers over as is, change the equity for capital stock.

Some misunderstandings arise here (may want to skip to the end)

FLAcct (talk|edits) said:

20 March 2012
I have always moved the assets into the S corp at their net book value (basis) and started depreciation anew in the S corp. I believe I had done research at the time I first starting using this method, but since JR1 is just about always correct with his answers it is causing me to question my method. The one thing that bothers me about JR1's method is: How can a brand new S corporation have potentially years and years of accumulated depreciation on its books? I would appreciate it if anyone could provide documentation to support which method should be used.

Joro7476 (talk|edits) said:

20 March 2012
It depends on what you transfer. Generally such transfers are tax free /Sec 351/ and the basis of the assets just goes to the S Corp. If you transfer more libilities than assets it may get a bit more complicated.

JR1 (talk|edits) said:

March 20, 2012
FL, they do just transfer over exactly as they were, which takes some overrides in the software sometimes to get the right answer. Kevin would be proud, I know...!

FLAcct (talk|edits) said:

20 March 2012
Ok, so now Acctplus 2009, myself and Joro7476 all believe that the assets should be brought into the S corp at their basis (NBV). JR1, can you provide any support for your method?

Joro7476 (talk|edits) said:

20 March 2012
hmm.. Sec 357 does not apply in FL? How do you transfer equipment with tax basis 100 subject to 150 liability? what is your basis in the stock of the SCorp after the transfer and what will the equity section look like? Is there difference if the liability is recourse vs. non-recourse?

FLAcct (talk|edits) said:

20 March 2012
Can we just keep this simple? No liabilities involved for the sake of this conversation. (Liabilities transferred in excess of basis may result in a gain - but that's another issue. It does not affect how you should transfer the assets to the corp.) Let's take a computer on the books of the Sole Prop: $2000 = cost; $1040 = accum depre on the date of the transfer to the S corp. Do you record in the S corp: Equip $2000, accum depre $1040 and continue on with the depreciation schedule of the Sole Prop - or - do you record Equip $960 and start depreciation over? That is my question.

JR1 (talk|edits) said:

March 20, 2012
Yes.

No.
Sec. 351...and whatever the corresponding section is for continuing the depreciation is. You literally just change the name on the Balance Sheet and rejigger the Equity section. As simple a thing as we have in the tax world. (As long as there's net equity.)

Now everybody's back on the same page

Joro7476 (talk|edits) said:

20 March 2012
ditto JR1

you transfer and continue dont start anew

FLAcct (talk|edits) said:

20 March 2012
Okay, so you move over assets at cost and the total amount of accumulated depreciation from the Sole Prop books. The brand new S corp may have like $100,000 of accum depre (which will look strange), but that's just the way it is. I got it! Thanks.

Aatop (talk|edits) said:

21 March 2012
How about goodwill? Would you bring it over too with its accumulated amortization?

Ckenefick (talk|edits) said:

21 March 2012
Yes...

And FYI:

From 168(i)(7)(A):

(7) Treatment of certain transferees.

(A) In general. In the case of any property transferred in a transaction described in subparagraph (B), the transferee shall be treated as the transferor for purposes of computing the depreciation deduction determined under this section with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. In any case where this section as in effect before the amendments made by section 201 of the Tax Reform Act of 1986 applied to the property in the hands of the transferor, the reference in the preceding sentence to this section shall be treated as a reference to this section as so in effect.

(B) Transactions covered. The transactions described in this subparagraph are—

(i) any transaction described in section 332, 351 , 361, 721 , or 731, and

  • "adding search term: Sch C

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