Inter Vivos Trust and S Corp

[cpabsd]

During May 2008, client transferred real estate from S corp to an inter vivos trust. Subsequently, client transferred property from inter vivos trust to new S corp. The intent was to move the real estate into a separate S Corp rather than have assets from other business co mingled. The attorney is a well respected tax attorney in our area. He told the clients this was a tax free transaction. Does anyone know how to record as tax free? I have a call into the attorney to get the full explanation but any thoughts here would be welcomed.

Thank you!

[OldJack]

Well.. the questionable transaction in my thought would be the transaction from the S-corp to an inter vivos trust. Such trust is not normally recognized as far as federal taxes but the question is did ownership transfer out of the S-corp causing a gain or loss transaction. I expect it was a taxable transaction as it was legally (title) distributed from the S-corp and would be reportable as a sale on form 4797. A transfer from the Old S-corp direct to a New S-corp could be tax-free if it meets the requirements of a split-off or tax-free reorganization. Maybe the trust was only holding title as a straw party until the new S-corp could be established....attorney should provide you with a written document explaining why it would not be taxable.

[kcjenkins]

I agree with Jack, this is too complex an issue to be able to give you a complete answer here. This one should be tossed to the attorney to clarify, and getting something from him in writing as to the taxabilty of the first distribution is essential to CYA for you.

[cpabsd]

Thank you KC and Old Jack. I sent the attorney an e mail so that he would be prepared to answer my questions during the teleconference. I will be certain to request the information in writing.

Thanks again.