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re: Question for the lawyers and CPAs (property to an LLC)
Posted on 1/26/12 at 10:42 pm to simonizer
Posted on 1/26/12 at 10:42 pm to simonizer
quote:
you said there would be tax consequences. i just asked you why?
I'm not going to research the issue when I know the correct way to do it. It's not an issue that would ever come up for me or a client that I prepared the work for. I know that rule that if A gives to B, A has to pay gift taxes if applicable. Unless the property is less than $13k, B is a charity or some other special entity, or some other exclusion arises then gift taxes will have to be paid by A.
Maybe you are right, maybe there is a tax court decision or bright line statute on the matter. But I'm not sure why you have assumed no taxes will have to be paid because of pass-through taxation.
1
Posted on 1/26/12 at 10:47 pm to rmc
the whole point is that it isnt pass-through.
a single owner llc is by default a disregarded entity.
Section 301.7701-1(a)(1) provides that whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.
Section 301.7701-2(a) provides that a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code. A business entity with two or more owners is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.
Section 301.7701-2(c)(1) provides that, for federal tax purposes, the term “partnership” means a business entity that is not a corporation under § 301.7701-2(b) and that has at least two owners.
Section 301.7701-2(c)(2)(i) provides, in general, that a business entity that has a single owner and is not a corporation under § 301.7701-2(b) is disregarded as an entity separate from its owner.
a single owner llc is by default a disregarded entity.
Section 301.7701-1(a)(1) provides that whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.
Section 301.7701-2(a) provides that a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code. A business entity with two or more owners is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.
Section 301.7701-2(c)(1) provides that, for federal tax purposes, the term “partnership” means a business entity that is not a corporation under § 301.7701-2(b) and that has at least two owners.
Section 301.7701-2(c)(2)(i) provides, in general, that a business entity that has a single owner and is not a corporation under § 301.7701-2(b) is disregarded as an entity separate from its owner.
Posted on 1/26/12 at 10:56 pm to simonizer
In my lingo (and I'm not a CPA or tax expert) pass through means disregarded entity. Maybe that's not proper, but I'm not arguing it to mean anything differently.
Obviously your argument is A can't give to A. All I know is that when A gives to B, there is a taxable event possibly. How that is squared up by the IRS, I don't know.
I'll end the discussion on my end with what I said earlier. I don't know what would happen, but I won't have to worry about it.
Obviously your argument is A can't give to A. All I know is that when A gives to B, there is a taxable event possibly. How that is squared up by the IRS, I don't know.
I'll end the discussion on my end with what I said earlier. I don't know what would happen, but I won't have to worry about it.
Posted on 1/27/12 at 10:41 am to simonizer
It depends how you sequence events. You can form the LLC, and contribute property. No tax consequences since the LLC is a disregarded entity. If you form the LLC and make the elections to be taxed as a corporation and then an S corporation before the property is contributed, then you are contributing property to the S corporation rather than the disregarded entity.
However, you are correct in that there are no issues involving the contribution of appreciated property in either case. Sec. 351 will allow the nontaxable contribution of property in exchange for stock if the shareholder owns 80% of the stock after the exchange. For a single-member LLC the ownership will be 100%.
However, you are correct in that there are no issues involving the contribution of appreciated property in either case. Sec. 351 will allow the nontaxable contribution of property in exchange for stock if the shareholder owns 80% of the stock after the exchange. For a single-member LLC the ownership will be 100%.
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