Am doing an S Corp tax return for their first year of operation. Do we still have to put a note in the return concerning sec 351 and the original owner's investment?
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Section 351 applies to S corporations as well as C corporations.
I have never had a problem with not attaching the notice if the business is starting with just a cash contribution and no appreciated property is being transferred. I think if you are transferring in appreciated property under Section 351, then there is a need to file a statement. -
I did this with a S-Corporation last year. My first year in setting up a new corporation... correctly. I won't go into great details but I was not taught the correct way. I found out how by several members of this board... that were at the other board
I had only setup two other S-Corps while owning my business.
Anyways I did include a statement showing what property was transferred and how I came up with the new value and shareholder basis. It was quite a learning experience. A good one. So yes you do need to send one. It shows how you came up with the figures.Comment
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sec 351
Thanx for your help.
JimComment
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Statements attached
Both the transferor and the transferee attach the election. I do not think you get a new value or basis. 351 is for the tax free incorporation of a previous ongoing business. Be careful of 358 that liabilities do not exceed cost basis being transferred.
If you are incorporating and paying cash for stock or loaning to the company this is not a 351 transfer.Comment
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In my case the liablities was more than the basis of the assets which made things more complicated. That was what I was talking about on the new basis. If I remember it correctly.Comment
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In Excess
I means you do not have a "TAX FREE" incorporation.Comment
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Yes you are correct. Sorry if I caused any confusion. It wasn't a taxfree exchange. But I looked at the Sec 351 when figuring all that out. As part of the explanation it gave a paragraph on liabilities being more than adj basis of assets.Comment
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