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CGCPA
CGCPA, CPA
Category: Tax
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Experience:  over 40 years experience in tax matters
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1. Started a C Corporation that made school software in 2007.

Resolved Question:

1. Started a C Corporation that made school software in 2007. Initial investment $10k. Let's call it Acme Corp.
2. Sold the assets of the corporation in 2009 and received $175,000 in stock in the company that purchased the assets (school district software)
3. Ended up investing personal money into Acme Corp to pay the taxes on the stock received for the asset purchase (was treated as income to the corp). Taxes paid were around $75,000 (should have filed an S Corp…)
4. Need to transfer the stock to myself/wife.
a. Do I issue a dividend from the corp to myself/wife?
b. Can I do a 1031 exchange and avoid paying taxes until later when I sell the stock I received?
c. Is my cost basis in the stock now $10k+$75k (for paying the corporate taxes)?

What’s the best way to handle this?
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

First, lets discuss the 1031 concept. A 1031 exchange does not apply here because you are not exchanging real property. Real property is real estate.

 

Perhaps the simplest way to deal with this, and the least expensive, is to exchange your stock in Acme and your loan receivable in Acme for the stock Acme holds in the second corp (B Co) . You end up holding the same thing as you, in nature, started out with before the exchange. Then dissolve Acme. Your basis in the B Co stock will then be $85,000. This includes the $10,000 you initially invested in Acme plus the $75,000 secondary loan/investment. Accordingly there will be no need for a 1099-DIV because there is no dividend.At this point no dividend equals no tax. At such time as you sell the B Co stock, assuming no further investments, your gain will be the difference between the selling price and the $85,000 basis.

 

If you need clarification on any of this please feel free to ask.

Customer: replied 3 years ago.

Do I report anything on my personal taxes this year or wait until i realize a gain down the road when I sell the stock in B company?

Expert:  CGCPA replied 3 years ago.
If you follow the process I outlined above, you will have no personal tax reporting this year. The gain/loss will not be recognized until you sell the stock in B Co.
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
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