A sole proprietorship became a corporation. The building was never "technically" transferred because not in corporate name, however was transfered and depreciated taxwise. Now, the owners are thinking of changing back to a proprietorship, I'm wondering if I can ammend returns and not show the building depreciated. They corporation would lease the building, and start paying now. However none paid in past and I can't show as notes payable to the stockholder because that would trigger income not reported by the stockholder, can the rent just not be paid for a couple of years? Can I do a lump payment in 2011? Obviously, the tax reprocussions of transfering this asset back will be HUGE! And really unfair, so I'm looking for a way out!
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Just moving this back to the top, ideas for research would greatly be appreciated! -
You might look at Sec 721 to see if that helps. I'm familiar with the section number as it relates to the transfer of assets, but don't know the answer to your question because I've never actually studied it.Comment
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Your situation illustrates why some consider transferring real estate into a corporation malpractice. When the client decides they no longer want to play the corporation game, they get hit with a huge tax bill on the appreciation of the real estate, even though it is not being sold.
Assuming all prior years are still open and able to be amended, you could try doing it and see what happens. If IRS questions it, say there was a mistake in that the real estate was never transferred in title to the corporation, nor did the corporation have any corporate minutes that indicate it wanted the real estate transferred in exchange for stock. I would also have the corporation pay the shareholders rent for the current and all prior years. The simple explanation for paying rent all in one year is the prior years were a mistake.
I'm not suggesting the IRS will buy any of this, but it is worth a shot.Comment
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If the 351
was done it has to list the assets both on the transferor statement and the transferee statement and with their returns in the year it happened. IF this was done recently how could there be a BIG gain in getting it out???? If there is a big gain because the transferor held and depreciated for years before the 351 you have a problem.
Obviously you can try Bees, look at the statements sent with the returns to see what was listed as tranferred. Have some answers if audited. Come up with reason for removing the building... If mortgage payments, real etate taxes and selected operating expenses were paid by the corp in the old years that could be the rent to the stockholder if the building was never transferred.
Good luck.Comment
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Thanks everyone, must be on this to research and deal with Monday, any other ideas?Comment
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If I decide to try this, can the officers set the rent at any amount under the fair rental value, or must it be close to the amount if leasing to a stranger?Originally posted by Bees Knees View PostComment
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ok, I've looked at the 1120x ammendment form, I assumed it would have all those pages and the balance sheet again but it only asks for changes in income and expenses. I'm thinking, if we take the building out of assets this tax year, have good notes explaining what and why, and the property tax and deprectation mistakenly shown on the building in the shareholder's name would go to rent not changing income or expenses, I'm thinking there's no point in ammending????? Agree or disagree????? An explanation can also be in the minutes of the corp.--will that work???Comment
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and insurance...can the rental agreement specify that lessor pays that or does that need to be shown as rental too?Comment
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