Discussion:Can I transfer NOL from C corporation to Sch E 1040
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Discussion Forum Index --> Advanced Tax Questions --> Can I transfer NOL from C corporation to Sch E 1040
Discussion Forum Index --> Tax Questions --> Can I transfer NOL from C corporation to Sch E 1040
Golijoon33 (talk|edits) said: | 7 June 2012 |
| Hi,
I have a client who has set up a C- Corporation for a rental property he owns. He wants to dissolve the C-Corporation because he does not want to pay $800 franchise fee and he wants to just show his rental income and expenses on Sch E. He has $30,000 NOL on the C-Corp. Can he transfer the NOL to his individual taxes if he dissolved the corporation and reports his income on Sch E??? Also is there any benefits for him to keep the C corp of his net income is around $200 besides the liability protection?? Thank you all for helping me!!! Kelly | |
RoyDaleOne (talk|edits) said: | 7 June 2012 |
| 1. Liquidated the C Corporation on paper and determine any gain or loss to the shareholder, and to the Corporation.
2. Tell client the results and let client make decision. 3. I don't see how there is any benefit to your client from the C Corporation, because it appears it would be a play toy and not a real business. | |
RoyDaleOne (talk|edits) said: | 7 June 2012 |
| Use insurance to protect against potential liabilities. | |
Golijoon33 (talk|edits) said: | 7 June 2012 |
| Roy,
Will he lose his NOL if he dissolves the C corp and starts reporting his income on Sch E?? | |
| 7 June 2012 | |
| Liquidaton would be governed by IRC §331, which is not an IRC §381 transaction. Therefore, NOL would not transfer. Only liquidations of a C corporation into it 80% controlling parent corporation preserves the NOL under §381.
However, the §331 transaction is a taxable event. Client would recognize gain or loss equal to the difference between the value of the property distributed and the tax basis in the cancelled shares. There is one other nasty aspect of §331. Since repeal of the General Utilities doctrine, the §331 liquidation is not tax-free to the liquidated comporation. It would recongize gain equal to the appreciation in the distributed assets. However, the NOL could be used to offset this gain in the final From 1120. A C corp does afford some protection from liabilty. However, he could obtain the same protection by creating an LLC. The default classification under the check-the-box regs. would be to a disregarded entity that is not separate from its owner for tax purposes. However, it would be a separate legal entity for purposes of liability. | |
| 7 June 2012 | |
| Add this to the list of reasons to NEVER own appreciable real estate inside a corporation. JR1, are you keeping the list? | |
RoyDaleOne (talk|edits) said: | 7 June 2012 |
| "Will he lose his NOL if he dissolves the C corp and starts reporting his income on Sch E??" as an NOL yes. However, the liquidation could result in a loss to the stockholder, I don't know without the numbers and some real facts. Please do not post such items in a public forum. | |
CathysTaxes (talk|edits) said: | 7 June 2012 |
| Plus the transfer has to be a fair market value because it's between 'related' parties. | |
| 8 June 2012 | |
| Kevin, never say never. If a non-resident alien owns U.S. real property directly or through a partnership, it subjects him U.S. estate tax. Owning through a foreign corporation has the disadvantage of taxing gain at corporate rates. However, this is often preferable to paying U.S. estate tax on the entire fair market value.
If the NRA lives is the right treaty country, he may even own the real estate in a U.S. C Corp and avoid estate tax. This would avoid the branch profits tax pitfall. RoyDale, yes, the shareholder may have a loss on liquidation, but it would be capital. | |
