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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1408
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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A stockholder in an S Corporation assigns some of his shar

Resolved Question:

A stockholder in an "S" Corporation assigns some of his shares valued at 100,000 to the Corporation. His basis is 8,333. Are there any gift tax implications to the stockholder?
Submitted: 5 years ago.
Category: Tax
Expert:  Jax Tax replied 5 years ago.

Jax Tax : You cannot really make a gift to a business in which you have a business relationship. It is in direct conflict.of.the definition of a.gift.
Jax Tax : Please.provide.the reason fro doing.so and.any amount of.funds or.assets.that.were transferred and ill try to asset you in properly categorized it.
Customer:

The company needs add'l capital. Therefore, this stockholder was willing to give up some of his shares so they could be sold to a new investor.

Jax Tax : If you follow me, you'll understand this transaction.
Jax Tax : First, it is not.a.gift by any stretch.
Jax Tax : Second, imagine you had the money to give to the business or an asset with enough equity to give that the business could dale.for the funds. This would be a capital contribution on your part. The business would sale the asset, it would gave gain in the amount over basis and if an s corp pass to you on a k1.
Jax Tax : Same is somewhat true here. You are making a capital contribution of an asset of yours, the business is going to sale it, and there will be gain over basis.
Jax Tax : Third, in these transactions, basis is the same as it is in your hands. The gain ultimately comes back to you to pay tax.
Jax Tax : Fourth, while.not.exactly the same, you will have capital gain or loss. In this case, it is treated as if you sale it directly to the buyer. You have gain or loss based on your basis, and report it on your personal return as capital gain.
Jax Tax : Fifth, you then make a capital contribution to the business increasing your outside basis.
Jax Tax : The other option is to issue new shares by board resolution. If you are currently the only owner, that should be easy. If a c corp, you could also issue different classes of stock to ensure a.retention of power.
Jax Tax : This is a much more common transaction in small businesses.
Jax Tax : So to answer your question. Yes, there will be tax, but it will not be gift tax.
Jax Tax : The last option is to issue corporate bonds.
Expert:  Jax Tax replied 5 years ago.
Please let me know if I can be of further assistance.
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