Business Transfer/Sale??

[geekgirldany]

Client has a dvd/cd store. He has been losing money the past couple of years and is getting out of it. What he plans to do is transfer it all into his brother's name. His brother will not pay him anything for the business. Basically the brother is just taking over. This is what he said went from transferring to parents to brother. Anyways...

Will my client still report the transfer of assets (a few racks) and inventory as a sale? I read that sale of inventory is taxed at ordinary tax rate and the transfer of assets must be reported on form 8594.

I just want to make sure that this would still be considered a sale. I'm not sure since it is just a transfer to his brother. Someone else mentioned to me it could be a Gift since no money exchanged.

Thank you

[Bees Knees]

If no money is changing hands, there is no sale. Your client is abandoning his interest in the business.

Under normal circumstances, then, your client would have a deductible loss based on his basis, if any, in the assets he is abandoning. However, because he is abandoning the assets to a related party (his brother), no loss is allowed, until his brother sells the assets.

[geekgirldany]

Thanks so much for clearing this up!

[Gretel]

So much for the sales aspect.

I still believe in regards to gift taxes it's a gift, which requires a gift tax return if FMV is over $11,000. Am I wrong?