How to treat reassignment of property

[ILLMAS]

Corporation A owns a building with an adjusted basis of $500K, during the year they reassigned the building to their second corporation B.  My question is do you simply remove the building from A and move to B?  Or do you take the FMV of building and that's your new basis?  Or is it considered a gift and the Corporation should pay taxes on the gift since there were no exchange of money?

Corporation B

After the building was reassigned from A to B, B decided to sell the building they received with no consideration for $1.5M and the proceeds were deposited into B.  My question is, how do account for the gain? 

It seems TP goal was to offset the gain on the sale of the building against B's NOL's, however I feel they didn't think things through and there might be taxable event when they reassigned the property, anyone else agrees?

Thanks

MAS

[grandmabee]

Need to check out related parties.  When you take out assets of the corp. doesn't it go out at FMV as a sale?  So I would think Corp A would report sale of building at FMV gain and then Corp. B would pick up basis as FMV.

[jklcpa]

Are these C corps?   It seems that you have a "deemed" sale in corp A because of the transfer out that is a taxable event, distributed out at FMV. If debt is involved, it could also generate taxable income from relief of debt that exceeds FMV at the time of transfer.

Corp B reports the sale as grandmabee said. 

I think they shot themselves in the foot with trying to circumvent taxes, and they will have little to no gain in Corp B, or possibly a loss after selling expenses, and no way to utilize the NOL.

[ILLMAS]

8 minutes ago, jklcpa said:

Are these C corps?   It seems that you have a "deemed" sale in corp A because of the transfer out that is a taxable event, distributed out at FMV. If debt is involved, it could also generate taxable income from relief of debt that exceeds FMV at the time of transfer.

Corp B reports the sale as grandmabee said. 

I think they shot themselves in the foot with trying to circumvent taxes, and they will have little to no gain in Corp B, or possibly a loss after selling expenses, and no way to utilize the NOL.

Yes, they are both C corps, with no debt.

"I think they shot themselves in the foot with trying to circumvent taxes, and they will have little to no gain in Corp B, or possibly a loss after selling expenses, and no way to utilize the NOL."  I agree, it seems right after the reassignment of the building, it was sold, so the FMV is probably the sales price and very little tax benefits.