Thank you for your question. My name is XXXXX XXXXX X would like to help you today
Unfortunately, if this is just the minority shareholder swapping one stock for another, this would not be a tax free reorganization.
that's what I thought. what are the tax implications?
The minority shareholder would recognize gain or loss on the disposal of the original S Corp stock
It would be gain since they have no basis
he has a negative basis from all the losses. How would gain be calculated?
Well, their consideration is the value of the new stock they are receiving
So their gain would be equal to the value of the stock in the second company
if it was 80% would it be a tax free exchange?
Yes, because it could be a reorganization
so the value of the stock in the new business would be figured by FMV of corp? Would he be able to offset the gain by the carryforward of losses?
Yes, the carryforward losses would offset if the losses can be used
would his basis from the old increase because of the exchange so he could offsetthe losses?
Well, his basis in the new corp would increase by the gain recognized from this swap
so he would have zero basis in the old and the carryforward losses just disappear?
That would be correct, because he will never get basis in the old to use up with the losses
got it thanks
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That will do it. Thanks Megan!
I need some more help....
I forgot to ask how the transfer works. With zero basis in the old and 60,000 FMV of new stock....he has a 60,000 gain....with 60,000 in basis. What happens if their is 100,000 in losses? Does that offset the gain becuase of the 60,000 in basis?
so 60,000 in capital gain and then 60,000 in ordinary loss...since he has active participation and is at risk. Then the 40,000 carries over?
but with 60,000 gain he would only have 60,000 in basis? Then 40,000 of the loss will carry forward until he has more basis?