Spin Off between 2 S-corporations

[equinecpa]

Clients own 100% of 2 S-corporations -one containing real estate (active business) and the other their trade business (horse breeding and training). The real estate is in the s-corporation due to it being the only way they could get financing for it (not my counsel!).

Clients are getting divorced. Husband would like to take the trade business S-corporation as well as a piece of land owned by the other S-corporation. Wife will retain ownership of the real estate s-corporation.

The land will be used in the husbands active business (horse breeding & training). Can the transfer of the land be done tax-free in any way, perhaps using a D split-off?

[BHoffman]

You might want to look at Sec 351 to see if that will apply:

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._351._Transfer_to_corporation_controlled_by_transferor

[equinecpa]

Old thread but I have a question based on the original question: Client went through with Spin-Off in 2013 (took a while to settle this) but I'm confused on something as I'm reviewing 2013 tax return..

Original S corp spun off land to new s corp. Husband and Wife exchanged shares. Husband owns new S corp, Wife old.

How is this accounted for in the original Corp? Land had note against it which didn't get transferred (mortgage holder released lein on that portion of land).

So Assets have been reduced by $150,000 basis but debt has not? What is my corresponding liability here? I'm thinking capital is reduced but there is not enough capital to reduce-is this entered as Treasury stock? Does this become a capital gain due to negative basis? And on the new corps books it now has an asset worth $150,000 does capital get credited with $150,000?