Scorp to Sole

[TAX]

Client, sole shareholder, is a Scrop. Wants to convert to sole propritor effective Jan 2011.

Is it cosider sales of business to himself?

Is there anything special I need to do?

Thank you!

[appelman]

I have a similar case coming up.

In CA you file a Certificate of Dissolution with the state. They send you back a certified copy which you file with the feds along with Form 966. Obviously you need some plan for settling of liabilities and disposal of assets. (In my case, there aren't any assets left over.) I don't think I'd consider it a sale of the business, but I'd be interested in what others have to say.

[erchess]

Steps

People do omit this step but theoretically an S Corp is supposed to have a board even if it is a board of one and the board is supposed to meet at least once a year and have minutes of its meetings. The minutes should reflect all major decisions especially the decision to dissolve and the date this is to take effect and the prior to that date distribution of the assets to the shareholder. If he bothered to issue formal stock certificates he will need to cancel them and the papers he got with them should explain how this is done.

It would be simplest to make 12/31/10 (for a calender year S Corp) the date of dissolution so that no short year return is required nor any S Corp Return for 2011. If it is not a calendar year S Corp and you dissolve it on that date a short year return that will also be a final return will be due 3/15/11.

You probably have to go on some state website (Sec of State usually) and formally dissolve the corp or it may be that this has to be done on paper. I don't know whether this has to be done by 12/31 in your state or for that matter mine but I'm pretty sure it can be so why not?

You will notify the IRS and if applicable the State Taxing Authority by the way the return is prepared. The boxes Final Return and Final K and Final K1 get checked and I'm not aware of anything else that changes because it is the final return. The return is due on the same date as though the S Corp were not being dissolved.

If the S Corp was depreciating any assets that he continues to use he will depreciate them picking up where the S Corp left off.

[Bees Knees]

If the S Corp was depreciating any assets that he continues to use he will depreciate them picking up where the S Corp left off.

I disagree. When an S Corp is liquidated, it is treated as if the assets are sold to the shareholder at fair market value in exchange for stock. Thus, if any depreciated property has a FMV greater than adjusted basis, it is a taxable transaction. (IRC §336)

[Davc]

Agree with Bees.

[JON]

1988 (Utilities Doctorine)

they took the option out of getting back out of corporation. Everything is taken to FMV and any gains are taxable at the corprate level, to be passed out to the shareholder,assuming they have not recently converted from a C to an S. If cash basis I think that would include receivables less payables, goodwill etc.

Bees is on top of it.


HAPPY NEW YEAR>>>>

[erchess]

Thank you all

for the correction.