Discussion:Capital Gain/Dissolution of C Corp
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Discussion Forum Index --> Tax Questions --> Capital Gain/Dissolution of C Corp
| 18 October 2006 | |
| I have a client that has a C Corp with its only asset as a rental building in NYC. He wants to sell the building and dissolve the corp. The building has a depreciated basis of only about 40K left and the property is worth 800-900K. Is there some way to dissolve the corp and have him take over basis in the building so that the sale would not be taxed twice (once at corp level and then again to him as a cash distribution of the proceeds)? | |
| October 18, 2006 | |
| Nope. Tell him he gets to die with it. The stupid move was putting it in there in the first place. Oh, and then not making it an S. Duh. Now he pays. The only other option than death is wondering about a 1031 inside the C? Assuming he doesn't want to cash out, that would be a way to flip buildings, but he must trade up, not down. | |
Death&Taxes (talk|edits) said: | 18 October 2006 |
| JR, 30-40 years ago, accountants incorporated everyone in NYC for reasons of liability and avoidance of the NYC Unincorporated Business Tax and probably to make a buck too. I know because I picked up some wonderful clients that all had C Corps. There were no LLCs then, and it was only in 1981 that the maximum rate became 50%, so it was common to split income between individual and C Corp. Pensions were better in C Corps too. So once a C Corp, and in a business like rentals, you might have had excess passive income to pay tax on had he converted to S and waited out the term to avoid the built in gains tax. And also if I recall, there was old Section 337, the 12 month liquidation, to avoid the double taxation, but maybe I am dreaming that. You are right, my friend! He must die with the corporation intact and running. | |
| 18 October 2006 | |
| Advised on one of these last month. May not go through...potential liability examination is extensive. Essentially C Corp is going to do a 1031 exchange for an outdated strip mall. Corp interested in buying mall intends to demolish and will purchase stock. C Corp shareholder is both paying a premium and giving a discount. There are intermediaries out there who will buy C Corp stock. | |
| October 18, 2006 | |
| I understand that D&T, but there was that wonderful period during the General Utilities era when all those could be fixed...! | |
Corptaxhelp (talk|edits) said: | November 17, 2006 |
| Good day, Snork.
I'd be interested in speaking with you once your client has completed his asset sale. I have some investors who may be interested in buying the c-corp. $800k is a little less that what we normally look for but I still think it would be worth your time to make the introduction. If your client sells his shares in the c-corp, he won't face nearly the tax burden as he would if he simply walked away. Drop me some email if you're interested. | |
Corptaxhelp (talk|edits) said: | November 17, 2006 |
| As an aside, to JR1, I come across a lot of real estate held in c-corps. Much of it has to do with foreign ownership. S-corps are not available to foreign investment.
The other scenario I often see is when a company was formed more than 30 years ago and it was c-corp or nothing. The corporation bought property through the normal course of business. They may move to a larger building but hold on to the old property and lease it out. Fast-forward, the shareholders are ready to retire and they realize they have a few all-gain properties and few options. As an American citizen, I'd never hold property in a c-corp for all the reasons you preach. Still, I can see how it happens and can't be too hard on the folks who find themselves in that situation. Since it is a tough situation, I'm glad I work with folks who can help soften the blow a bit. | |
