Built in Gains or not?

[BHoffman]

Inc.A started out as a C-Corp.  The C-Corp was a partner in a partnership.  The partnership held Land as an investment.

On 01/01/2013, Inc. A made an S-election.  On 12/31/13, the partnership terminated and distributed the Land to Inc. A.  

If Inc. A sells the Land in 2016, is the gain subject to the build-in gains tax?  

I'm thinking it is not because Inc. A owned only a partnership interest while a C-Corp and not the actual Land.  It acquired the Land while an S-Corp - when the partnership terminated and made the distribution.  Am I on the right track?

[DANRVAN]

I believe there is a BIG on the partnership interest that will be recognized when the land is sold.

In the case of  "The Ringgold Telephone Company v. Commissioner (T.C. Memo. 2010-103)" the question was not whether there was a BIG from the partnership interest held at the time of conversion. The argument was over the valuation of the partnership interest.  Both parties agreed there was BIG.

 

 

[jklcpa]

I didn't research but I think there is a BIG also. The partner is considered to own the underlying assets of the partnership, and when the corp made that S election, it became the "owner" of that land that was later distributed to it.   I think the sec that covers it might be 751, but don't hold me to that for sure. I'd have to look up to verify the reference.

[BHoffman]

OK.  Just to be sure:  The SCorp acquired the land on 12/31/13 and in order to avoid the BIG tax, it should wait 5 years until after 12/31/18 to sell.  Right?

[BHoffman]

Yes.  The PATH Act permanently reduced the BIG holding period from 10 to 5 years.