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Deceased S-Corp

  • 1.  Deceased S-Corp

    Posted 03-08-2019 20:39
    I have a client that was a three shareholder S Corp. one shareholder passed away. His spouse claims that her lawyer says that the only way that she will get a stepped up basis is if they sell the property and close the corporation in one year. The remaining sure who is do you not want to sell the property right now. I argue that the remaining shareholders can buy her out and her stock maintains her stepped up basis. I need to be able play to lawyer to the right part of the law. Please help. 


    Alfonso J. Mollica CPA
    Alfonso J. Mollica CPA, P.C.


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  • 2.  RE: Deceased S-Corp

    Posted 03-08-2019 21:31

    Al

     

    If she obtained the stock from her deceased spouse, her basis of the stock is stepped up. Period. Unlike a partnership, there is no change, like a §754 election to the underlying assets inside the "S Corp.

     

    The second half of your question is a bit hard to understand.

    FYI, there is a danger if they sell the property one year& liquidate  in the subsequent year. The capital gain would pass through yr one, and then a capital loss would be recognized on the disposition of the interest in the following year. And that is no good. If that is what you were alluding to.. 

     

     

     

     

    Abby Alhante,  CPA

     

    Kurcias  & Alhante, LLC  CPAs

    525 Broadhollow Road   Suite 104

    Melville NY  11747

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  • 3.  RE: Deceased S-Corp

    Posted 03-09-2019 05:26

    Alfonso,

     

    You are correct. The basis step up occurs in the stock itself, not the property in an S Corp. As such if she sells her stock she reports the stepped up basis as her cost in determining the gain.

     

     

     

     

     

    Vincent J. Preto, CPA

    Senior Partner

    Wagner & Zwerman LLP

    201 Old Country Rd. Suite 202

    Melville, NY 11747

    Tel. (631) 777-1000 Ext. 340

    Fax  (631) 777-1008 

     

     

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  • 4.  RE: Deceased S-Corp

    Posted 03-09-2019 09:06
    Thank you and to all, I owe you an apology for a poorly written email last night. I dictated it and autocorrect did a number on me.

    My problem is that her lawyer told her that to have the stepped up, they had to sell the property and close the corp in the same year. I never heard of that before and can't imagine where to look to prove him wrong. It's the stock that has the stepup and it's a corp, so there's no reason the corp has to be closed.
    I plan on suggesting that they buy her out and keep the building.


    Alfonso J. Mollica CPA

    Alfonso J. Mollica CPA, P.C.

    Thank you.

    We have eliminated the use of our old telephone number 516-579-8411 and only use the 516-597-4991 number in the future.

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  • 5.  RE: Deceased S-Corp

    Posted 03-09-2019 09:12

    Agree. Her lawyer is correct when the asset is being sold, which usually occurs when selling to an outside third party. If you do not dissolve the corp in the same year of the asset sale then you have a capital gain on the sale of the property in year 1 and a loss on the dissolution in year 2, which as you know is limited to capital gains + 3,000. So timing is everything when stock basis is stepped up on death.

     

    Your recommendation is spot on.

     

    FYI – if this is in NY, you may have a transfer tax liability on the sale of the stock.

     

     

     

     

     

    Vincent J. Preto, CPA

    Senior Partner

    Wagner & Zwerman LLP

    201 Old Country Rd. Suite 202

    Melville, NY 11747

    Tel. (631) 777-1000 Ext. 340

    Fax  (631) 777-1008 

     

     

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    This email, and any attachments to it, may contain information that is privileged, confidential, and exempt from disclosure under applicable law.  If the reader of this email is not the intended recipient, you are notified that any use, dissemination, distribution, copying, or communication of this email is strictly prohibited.  If you have received this email in error, please notify the sender immediately by return email and delete the email and any attachments. 

     

    Unless specifically stated otherwise, the written advice in this e-mail or its attachments is not intended or written to be used for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code.

     






  • 6.  RE: Deceased S-Corp

    Posted 03-09-2019 16:05

    Yes -- you are correct.  The remaining Shareholders can purchase her stepped up shares.  Unless the estate is a majority Sh. or the agreement says otherwise - a Shareholder generally can't force the sale.  There are exceptions probably not applicable here.  The Sale and liquidation requirement applies only if the Corp. decides to sell the property.  Then yes – the liquidation must be in the same fiscal year.



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