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Discussion:CA LLC Converted to C Corp

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Discussion Forum Index --> Accounting Questions --> CA LLC Converted to C Corp

Kokomo (talk|edits) said:

24 April 2013
A two-member CA LLC taxed as a partnership w/ 50%/50% allocations in all aspects went through the formless conversion process with the CA Sec. of State to convert into a C corp, with the two original partners owning 100% of the C corp stock after the conversion. Per Rev. Ru. 2204-59, such a conversion is to be treated as having gone through the following mechanism: (1) partnership contributed all of its assets and liabilities in exchange for corp stock (2) partnership liquidated and distributed corp stock to its partners. Partnership assets exceeded liabilities @ conversion, so per section 351 no gain/loss on the transfer. My questions are:

1. We can take the partnership ending balance sheet as the starting balance sheet for the corp, simply debit partnership capital and credit common stock. Right? I don't see a reason to start a new set of books in QuickBooks, but just want to make sure I am not missing something.

2. If we simply transfer the balance sheet over, the common stock is reported on tax basis ($20K each in this case). Is there any way for us to reflect the "FMV" of the stock the two shareholders got from the transfer, the value of which is now stated on the corp. board minutes for the stock issuance ($50K each in this case)? If so, what is the required journal entry?

3. One more question on the "FMV" of the corp stock rec'd. Are there any rules associated with how this "FMV" is ascertained? The corp plans to issue add'l shares in 2-3 months to other investors. The two existing shareholders simply picked the "FMV" based on the desired per share stock price in 2-3 months. I don't see any major tax issue on this since no gain is recognized anyway right now as we qualify under section 351.

Kevinh5 (talk|edits) said:

24 April 2013
Moving this to 'accounting questions'

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