Q:

Subject: Quick Tax question

We formed an Corporation in 1999 (C corp) and bought a parcel of Land in October 2003. After the purchase we have had No income or activities in the prior years and no tax forms were filed.
In 2006 we got approved from IRS as an S corp for the tax year starting Jan 1, 2006. How do we handle the transfer of the parcel from the "C" to the "S" corp? What tax consequences will this have January 1, 2006.? We have income from a option on the land in 2006 and are preparing to file tax return on this, you understanding is that the "profit" of this income will be passed through to the partners?

Appreciate your comments.

A:

This is an issue that you must work on with an experienced tax pro.  If it is the same corp that is now being converted to an S, you aren't technically transferring the land. 

However, there is a potential for what is called the Built In Gains Tax of 35% for IRS when there are appreciated assists in a corp that has converted from C to S and the assets are sold or distributed within 10 years after the conversion. 

You really should have discussed this entire mater with a tax pro before making the conversion; but hopefully a good tax pro can help you minimize or at least reduce the tax hit after the fact.

Good luck.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/20/2007 11:25:00 AM Send this post: