michaelmars Posted June 23, 2015 Report Share Posted June 23, 2015 This is a headache I inherited a few years ago and just went along with how it was even though I know its wrong. Time to try and make right.Client owned a building that he did a 1031 on. The attorney set up a new entity to hold the new property and did it as an LLC. The exchange agent let this fly. I guess as some point they realized the foul up and so they reported the LLC as a disregarded entity with the S corp as the sole owner. This way the property is still on the S corp return even though the title is held by the LLC. Probably should have just done an S election for the LLC but what is done is done. This was done in 2005, In 2012 there was a refi and they could have tried to fix it then but now its my problem.My options seem to be, keep as is; dissolve LLC and let title revert to S corp, or close S corp and let LLC stand on its own? Of course the last option is the best tax wise since it gets the property out of the Corp. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 23, 2015 Report Share Posted June 23, 2015 Confusing and contradictory information here. Try again with more details about the Client's situation before the 1031.Also, if you are going to work on this, get a BIG retainer. You will earn your pay on this one. 2 Quote Link to comment Share on other sites More sharing options...
mircpa Posted June 25, 2015 Report Share Posted June 25, 2015 If indeed there was a 1031 exchange how could attorney float new LLC where in fact property was held in taxpayer's name. I believe Tax ID needs to remain same for 1031 exchange to be effective otherwise IRS might revert 1031 exchange OR report under 1040 file Sch E write LLC's name & tax ID Quote Link to comment Share on other sites More sharing options...
michaelmars Posted June 25, 2015 Author Report Share Posted June 25, 2015 the ID doesn't have to be the same as long as the ownership is the same but in this case they went from holding title in a S corp to a LLC.Title was held by the S corp with 1 shareholder, the new entity was an LLC with 1 member. Since they at some point realized this was wrong, they transferred the LLC to the S corp so in effect the S corp still owns the replacement property. My desire now is to either dissolve the LLC and let title revert properly to the S corp. Or get rid of the Corp, leaving the LLC which is wrong but better tax wise. If the mortgage bank becomes a problem then my client can and is willing to pay off the mortgage. Quote Link to comment Share on other sites More sharing options...
jim@lwr Posted June 25, 2015 Report Share Posted June 25, 2015 There are private letter rulings (LTR 200807005 for example) that allow for replacement property to be held by disregarded entities. So the fact that title to the replacement property is in the name of a disregarded LLC is not necessarily a problem. If the LLC was not owned by the S Corporation at the time of the exchange, that may be a problem, but not necessarily. In the letter ruling the taxpayer wanted to acquire as the replacement 100% of the partners' interest in a partnership that owned the property, and that was deemed a good exchange.I would caution against dissolving the corporation without careful research. There will be a deemed sale of the property at fair market value upon liquidation and gain or loss recognized by the corporation and taxed to the shareholder, and it will do nothing to cure a failed exchange, if that is the case. 4 Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted June 26, 2015 Report Share Posted June 26, 2015 I like Jim's answer.SCorp can own the disregarded entity LLC if 100% ownership of both the original property and replacement property.Rich 2 Quote Link to comment Share on other sites More sharing options...
michaelmars Posted July 6, 2015 Author Report Share Posted July 6, 2015 I like Jim's answer.SCorp can own the disregarded entity LLC if 100% ownership of both the original property and replacement property.Rich I AGREE and that's how it is now but I am looking for a way to get rid of the S corp if possible. Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted July 6, 2015 Report Share Posted July 6, 2015 I AGREE and that's how it is now but I am looking for a way to get rid of the S corp if possible.Mike:If all the Scorp has is this LLC in it, it might be by operation of state law that the SCorp can disappear. Check with a smart attorney. Otherwise, maybe you can convert the SCorp if formed under LLC laws via the "check the box" rules to be an LLC.Rich Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted July 8, 2015 Report Share Posted July 8, 2015 Good luck, and let us know if you find a solution that gets it out of the S-corp without a big tax bite. Quote Link to comment Share on other sites More sharing options...
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