Sell of inventory to his newly formed S-Corporation

[jeanniee]

Client formerly operating as a sole proprietor has formed a new S-Corporation. He would like to sell his inventory to the corporation instead of including it in 351 exchange and get a new basis for it. He has other assets he is contributing in a 351 exchange. Is this allowed?

[Roland Slugg]

Of course. There is nothing to be gained by doing this, but he can do it if he wishes. If the selling price exceeds the inventory's cost, the profit will be taxable on the former business's Schedule C.

Semantics: Your client did NOT form an S Corp. He formed a corporation ... which then elected S Corp tax status.