S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders
. The shareholders must then report the income or loss on their own individual income tax returns
In order to change the ownership of a corporation, shares must be sold from one party to another; for a sale to occur, there must be a financial value associated with the transaction. In arms length transactions, the buyer and seller often perform valuations of the shares to determine the purchase price.
The problem is - is that you would be transferring the shares for no consideration
and then potentially transferring them back for no consideration. Attempting to effectively defeat the claims of creditors - a fraudulent conveyance.
So, basically, no you can't do that.
Certainly she can transfer the shares back to the corporation or other owners - but if she didn't get fair market value if the creditors found out it would be a problem.
Moreover, they probably would find out because if they filed suit against his estate - they could probably most likely ask for copies of past years tax returns and realize that there was a transfer of ownership. They would ask - what did you get for the shares or interests in the S corporation. If not fair market value it would be determined that it was a "sham" transaction or fraudulent conveyance and ask the court to set aside the transfer.
You and the owners of the S corporation would get dragged into the litigation.
So, although it can be done - I would advise against it.
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