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Who owns the Sub-S now? Is it 50/50 father & son?
It is doubtful that there would be a gift tax, but it is likely that a gift tax information return would be due.
However, it all depends upon what the value of the S-Corp is.
That would most likely have to be determined by a Business Valuation as the 25% interest would likely be more than $5,000. Further, there's likely a premium to be considered due to the control factor that the son would have.
There are ways to make the transfer to minimize the affect on the father's unified credit (for gift & estate tax) now the equivalent of $5,450,000. of lifetime/death tax free transfers in excess of the annual exclusions of $14,000. per recipient per year.
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