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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Is it possible, due to divorce, to split a closely held C corp.

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Is it possible, due to divorce, to split a closely held C corp. (operating 7 franchise fast food stores) 50/50, without large tax consequences?

Thanks,

Joe T

Lev :

Hi and welcome to Just Answer!
Yes - that is possible - but most likely you will need a qualified CPA or a tax attorney helping you with the process.
Most likely - there will be two main steps:
1. the corporation will be reorganized (divided) into two C-corporations with the same proportion of the ownership. The main purpose is to qualify for the tax free reorganization under sections 354-368
You may find great explanation here - but that would be relatively complex procedure to do on your own.
Current Developments in Tax-Free Corporate Reorganizations
2. the second step would be to transfer shares of C-corporations between you and your spouse - that is a tax free transaction.
See IRS publication 504 - www.irs.gov/pub/irs-pdf/p504.pdf‎
see page 18 - Generally, no gain or loss is recognized on a transfer of property from you to (or in trust for the benefit of):
--Your spouse, or
--Your former spouse, but only if the transfer is incident to your divorce.

Lev :

Seems as the link I posted got corrupted...
Please copy-paste this string into your browser address
http://www.steptoe.com/attachment.html/3177/Current+Developments+in+Tax-Free+Reorganizations-+PLI+.doc

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