S corp spin off

[winnie]

I have a S corporation that provides mainly engineering services. However, they have developed a prototype product in 2006 and they want to spin that with related assets off to a new S corporation in 2007. New corporation will have exactly the same ownership as old. I am thinking I can do all of this as a Section 351 transfer at original company basis and that shareholder basis at that amount will transfer as well. Do I need a valuation of these assets or take additional steps for the records? Tax Book seems silent, my Kleinrock research tells me tons on C corporation spin offs, nothing on S.

Thanks for your thoughts.

[OldJack]

A corporation is a corporation except for how it is taxed. You should follow your Kleinrock research and you should not have any problem transfering the asset tax-free to the new S-corp. And yes, it should appear on the books of the new S-corp the same as it was before the transfer. For accountability of assets on the old S-corp you might want to show it as a disposition/sale at cost with no gain on form 4797. I don't recall what other forms you have to attach to the tax return when doing a §351 but Kleinrock probably tells you that. Good luck.

[winnie]

Thanks

Winnie