Entity Change

[Taxizen]

The client changed the sole proprietorship to the corporation in the middle of 2007.

How do you treat the fixed assets existing on Schedule C? Do you treat it as sale of asset with no gain? Or do you just transfer assets to the corporation with the same data? If so, how do you inform IRS on the Form 1120 it is a tax-free reorganization?

Any input will be appreciated.

[RoyDaleOne]

Look at Section 351 for reporting requirements.

Assets go over at basis to taxpayer, generally tax free.

[OldJack]

Look at Section 351 for reporting requirements.

Assets go over at basis to taxpayer, generally tax free.

I usually transfer assets at basis if the corporation is a single owner, however, technically the assets are transfered tax-free at fair market value. But, the assets transferred under code §351, tax-free, still carries a tax basis of the shareholder's basis and therefore the excess of fair market value over the shareholders basis is not depreciable by the corporation. Thus the corporation in reality continues the depreciation schedule of the 1040 Sch-C.