Gail in Virginia Posted March 14, 2011 Report Share Posted March 14, 2011 We have a client (who I keep trying to convince to go somewhere else) who has three corporations. One is wholly owned by the husband (call it Hubby, Inc.) one is owned by the husband and wife (call it Couple, Inc.) and one is owned by the husband and an unrelated third party (call it Sucker, Inc.). Sucker, Inc. doesn't have anything to do with this particular question. All three are S corps. Hubby, Inc. bought a piece of land, which they then sold to Couple, Inc. Couple, Inc. spent some money fixing it up, and Hubby, Inc. did some work fixing it up for which they were not paid. Couple, Inc. then did a deed of gift to return the property to Hubby, Inc. Hubby, Inc. has the property for sale. How do I determine basis? Is there such a thing as a gift tax return for corporations? Why are they doing this to me? What forms do I need to file? Quote Link to comment Share on other sites More sharing options...
jainen Posted March 14, 2011 Report Share Posted March 14, 2011 >>Why are they doing this to me?<< Wow--I nominate you for Worst Client of the Week. Even though it's only Monday. I have found the best way to get OldJack to weigh in on things like this is for me to say something stupid. So I think it's a related party transfer and the basis carries over to the new owner. It's not a "gift" because it is within the business relationship. Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 14, 2011 Report Share Posted March 14, 2011 >>So I think it's a related party transfer and the basis carries over to the new owner.<< Well... we need more facts and what has already been reported on tax returns to determine what to do now. Sale at FMV and a taxable gain between related S-corps (50%+ same owners) generally result in new "cost basis" for the buyer S-corp books unless the transaction is a sham transaction that is ignored and recorded at carryover basis. However, "tax basis" and new "cost basis" for the buyer S-corp are NOT the same thing and tax basis generally is carry over basis for depreciation purposes under the anti churning rules (code sec. 168(f)(5)). Related party sale resulting in a loss gives no deduction to the seller S-corp under code sec. 267(a)and code sec. 267( b )(11). As to the deed, there was no gift, rather a sale at FMV or, if a sham transaction (no economic substance or business motive other than tax benefit), it is just a transfer at carryover basis with any cash difference a possible cash distribution to shareholder. Jainen... you sandbag as you knew that! Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.