A complex tax situation

[AccTaxMan]

Taxpayer A owned 100% of a C corporation. The value of the corporation included the clientele, equipments and goodwill which was estimated at $20,000 and he also had $8,000 retained earnings in the corporation. Then last year, he gifted the whole corporation to Taxpayer B. What is the tax basis of taxpayer B in the corporation?

[Jiggers]

Not complex

Taxpayer A owned 100% of a C corporation. The value of the corporation included the clientele, equipments and goodwill which was estimated at $20,000 and he also had $8,000 retained earnings in the corporation. Then last year, he gifted the whole corporation to Taxpayer B. What is the tax basis of taxpayer B in the corporation?

The tax basis is Taxpayer A's cost of stock.

You don't mention the cost of the stock.

The FMV and retained earnings have no relationship to the tax basis.

[AccTaxMan]

The tax basis is Taxpayer A's cost of stock.

You don't mention the cost of the stock.

The FMV and retained earnings have no relationship to the tax basis.

Thank you.

Taxpayer B is planning to elect to convert the C-corp to a S-corp. If he receives a distribution from the S-corp in the future and the distribution is more than the tax basis, I think it would be considered capital gain. Would it be long-term capital gain by default?

[Davc]

That would be base on the combined holding period of A & B.

[AccTaxMan]

That would be base on the combined holding period of A & B.

Let's forget Taxpayer A for the sake of simplicity.

If Taxpayer B receives the distribution more than 1 year after he was gifted the corporation, it would be long term capital gain without questions. Am I correct?

[OtisMozzetti]

Property received as a gift

What ever happened to the usual discussion of the basis of property received as a gift, based upon the donor's basis and the FMV at the time the gift was completed? Will the basis end up different if sold at a loss vs. sold at a gain? Will it matter if the recipient of the gift is a related party?