Single Member LLC to C Corp

[Scott L.]

Good Afternoon,

A client of mine made a change of entity from a single member LLC (Sch C) to be treated as a C corp for taxes purposes. In preparing the first 1120 for this entity, are there any special statements that should be attached to the return. Thanks.

Scott L.

[Bees Knees]

If the LLC owned anything other than cash, you would need to attached a statement under Section 351 that lists the date of transfer, name of transferor, description of property transferred to the corporation, transferor's adjusted basis of property prior to the transfer, class of stock and number of shares issued in exchange for property transferred, FMV of stock exchanged for the property transferred, amount of cash or FMV of property received, if any, by the transferor in addition to stock received, and amount of liabilities assumed by the corporation on the transfer.

Section 351 is explained on page 18-5 in TheTaxBook.

It may be as simple as saying: "On June 1, 2005, Joe LLC transferred a computer with an adjusted basis of $0 and a FMV of $200 to Joe LLC's Corporation in exchange for all the stock in the corporation. No liabilities were assumed by the corporation and no cash or property was received from the corporation on the transfer....etc. etc. etc."

Or something like that.

[Scott L.]

Follow up to your response

Thank you for your response. I am not clear as to why Sec. 351 needs to be involved. All the LLC did was file a 8832 to be taxed as a corporation. No property was transferred, liabilities assumed or shares issued. Thanks

Scott

[Bees Knees]

Well, if you now do the reverse: go from an entity taxed as a corporation to a single member LLC taxed as a Schedule C business, you would have a taxable transaction. The corporation would be considered liquidated and assets distributed to the owner, even though the corporation really did not exist under state law. For federal tax purposes, when you elect to be taxed as a corporation, you are a corporation for all tax rules that apply to corporations. You don’t get to pick and choose which rules you want to follow and which rules to ignore.