S-Corp Liquidation, Assets

[geekgirldany]

I got a new customer that closed a S-corp in April 08. A very different situation. Husband and wife that is separated. Wife was listed as sole shareholder, husband was an employee.After separation husband started new business, offering the same services in April 08.

I am going to be doing the tax returns for both businesses and they are filing MFJ. Okay now the wife's s-corp liquidates the assets to her and a gain/loss is recognized as if the property was distributed at FMV. If the liabilities on these assets are more than the FMV then the liability is used as the FMV.

I think I have that part. My problem is that the wife just gave the husband the assets (trucks, equipment) from her S-Corp she closed. No money exchanged. She said she just let him have it.

So my question deals with his business, S-Corp, how will he list the assets to depreciate them? I am thinking that it will be a Sec 351 transfer but that he does not have any basis in the property because the wife gave it to him, so there will be nothing for the s-corp to depreciate. I feel like I am missing something in the middle of this.

I would appreicate any input on this. Head is hurting from research

[veritas]

He will

use the fmv at the time the property is placed in service in the husband's business or the wife's basis whichever is lower.

[geekgirldany]

Thanks so much!!!
Looks like that is from the wife "gifting" the property to him? Is that correct.

[veritas]

This should help explain

Any transfer between spouses during marriage is treated as a gift.

from Regs. Sec. 1.1041-1T Treatment of transfer of property between spouses or incident to divorce (temporary).

q-11 How is the transferee of property under section 1041 treated for
income tax purposes?

A-11 The transferee of property under section 1041 recognizes no gain or
loss upon receipt of the transferred property. In all cases, the basis of
the transferred property in the hands of the transferee is the adjusted
basis of such property in the hands of the transferor immediately before
the transfer. Even if the transfer is a bona fide sale, the transferee
does not acquire a basis in the transferred property equal to the
transferee's cost (the fair market value). This carryover basis rule
applies whether the adjusted basis of the transferred property is less
than, equal to, or greater than its fair market value at the time of
transfer (or the value of any consideration provided by the transferee)
and applies for purposes of determining loss as well as gain upon the
subsequent disposition of the property by the transferee. Thus, this rule
is different from the rule applied in section 1015(a) for determining the
basis of property acquired by gift.

[geekgirldany]

Thank you so much for taking the time to find that. I really do appreciate it. I found the Reg. online and will print it out. Again thank you.