I have a couple who run an S-corporation together. They are getting divorced. Right now the lawyer has set it up that the S-corporation will liquidate a portion of the assets to one spouse and the other spouse will continue with the existing S-corporation and the spouse receiving the distributed assets will start a new llc.
If this is the way they proceed what tax impact will this have? Can the assets that are being transferred to the new llc be rolled into it without tax consequence? Or would this be a deemed distribution at FMV?
I believe the shareholders would elect to allocate income based on 2 short tax years. Do the 2 short years go on one 1120-S return?
Would there be any advantage/disadvantage in liquidating and shutting down entirely the current S-corp and setting up 2 new LLC's rather than just one? The s-corporation has only been in existence for 2 years so I'm fairly confident there are no hidden liabilities lurking around that could raise up and bite either shareholder later on.
Geesh..on the surface this sounds so straight forward but as I delve into it...not simple at all.
Thanks for any help!
CArolyn
If this is the way they proceed what tax impact will this have? Can the assets that are being transferred to the new llc be rolled into it without tax consequence? Or would this be a deemed distribution at FMV?
I believe the shareholders would elect to allocate income based on 2 short tax years. Do the 2 short years go on one 1120-S return?
Would there be any advantage/disadvantage in liquidating and shutting down entirely the current S-corp and setting up 2 new LLC's rather than just one? The s-corporation has only been in existence for 2 years so I'm fairly confident there are no hidden liabilities lurking around that could raise up and bite either shareholder later on.
Geesh..on the surface this sounds so straight forward but as I delve into it...not simple at all.
Thanks for any help!
CArolyn
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