Discussion:Partnership Conversion to C corp -Suspended losses
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Discussion Forum Index --> Advanced Tax Questions --> Partnership Conversion to C corp -Suspended losses
Discussion Forum Index --> Tax Questions --> Partnership Conversion to C corp -Suspended losses
| 14 September 2009 | |
| My client is a limited partner in partnership and has built up substantial suspended losses prior to 2008. This year (2008) the Partnership was converted to a C Corp and his K-1 shows "final year". Can the suspended losses be recognized on this year return or is it part of the new cost basis for shares owned in the newly founded company? | |
| 14 September 2009 | |
| no, yes
although I should probably ask why these were suspended first: passive, basis, or at risk? The outcome could be different | |
| 14 September 2009 | |
| Kevin,
Passive loss limitation;he is a limited partner and has no other K-1's from a 1065 Partnership that show gains which would provide an offset. Thanks for your help | |
| 14 September 2009 | |
| Hmmmm, now it is a C corp.
If this were an S corp, the answer would be easy: he hasn't disposed of the activity.
| |
| September 14, 2009 | |
| Presumably the conversion qualified under sec. 351. Sec. 469(g)(1) requires that gain or loss be recognized on a disposition to allow un-suspension of passive losses. If for some reason sec. 351 did not apply, you still probably have a related-party transaction, which doesn't work under sec. 469(g)(1)(B). | |
| 14 September 2009 | |
| Change of form of doing business is clearly not a disposition and therefore, will not release the suspended PAL as already discussed. I am not sure if the suspended losses in your scenerio will added to the basis of the stock. I beleive (although do not have the authority at this moment) that the suspended PAL stays suspended and could be offset by passive income in the future. I am aware that in certain circumstances such as a gift or transfer of from a trust to a beneficiary requires addition of suspended PAL to the basis but I do not think in the case. | |
| 14 September 2009 | |
| but where/how do you get passive income from a C corp? In my thinking, you only get portfolio income. | |
| 14 September 2009 | |
| I agree, I should have been more specific by saying, could be offset by passive income from other sources in the future. | |
| 14 September 2009 | |
| Don't believe that the losses are added to basis. Instead, the transferring shareholders would deduct the losses at such time as the shareholders have passive income, the corporation sells the properties, or the shares in the corporation are sold to an unrelated party. See PLR 9739004. | |
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