Built-in-Gains Provisions in C-to-S Corp Conversions: Avoiding Double Taxation Through BIG Planning

Pre-Conversion Valuations and Calculations, Identifying Losses to Offset BIG, Using C Corp Attributes to Minimize Tax

Recording of a 110-minute CPE webinar with Q&A


Conducted on Tuesday, March 8, 2016

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers with a comprehensive guide to the pre-conversion planning opportunities available to minimize or avoid built-in gains (BIG) tax in converting existing C corporations to S corps. The panel will discuss identification and valuation of assets subject to BIG tax and will discuss strategies to offset BIG through planning steps prior to the S corp conversion.

Description

Converting from C corporation to S corporation status can be beneficial from both tax and operation standpoints for many companies. C corporation owners can convert their company to an S corporation without triggering an immediately taxable transaction in most cases. However, there are a number of potential tax traps that can arise in a conversion if not properly planned. One of the most frequent, and costly, tax implications of a C-to-S conversion is the BIG tax.

Taxable BIG occur when an S corporation sells or distributes certain specified assets within five years after the date of the company’s conversion from C corporation status, or when a converted S corporation acquires assets with carry-over basis from a predecessor C corporation. Because the BIG tax is imposed at the top tax rate for corporations, tax advisers should look closely at asset planning prior to completing the S corporation conversion.

In planning for and reporting a C-to-S conversion, tax advisers must account for net unrecognized BIG as well as built-in losses. IRC Section 1371 provides for a netting mechanism to potentially lessen the impact of the BIG tax. Additionally, planners can utilize carryforward C corp attributes to minimize BIG tax.

Listen as our experienced panel provides comprehensive guidance on the calculations, risks and planning opportunities involved in minimizing or eliminating the BIG tax in a C-to-S corp conversion.

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Outline

  1. Identifying assets subject to BIG tax in conversion planning process
  2. Valuation requirements and options
  3. Projecting BIG tax impact post-conversion
  4. Transactions during recognition period
  5. Using C corp attributes to offset BIG tax
  6. Pre-conversion strategies for minimizing BIG tax

Benefits

The panel will discuss these and other important questions:

  • How to identify assets subject to BIG tax
  • Appraisal and valuation requirements and adjustments for all assets, whether on the balance sheet or not
  • How to estimate BIG tax liability
  • What strategies are available to utilize C corporation attributes to offset BIG tax?
  • What strategies can advsers employ to minimize BIG tax impact on assets pre-conversion?

Faculty

Nicholas P. Hoeft, Esq.
Nicholas P. Hoeft, Esq.

Jostock & Jostock

Mr. Hoeft's practice concentrates in the areas of estate and succession planning, probate, trust and estate...  |  Read More

Eric H. Jostock
Eric H. Jostock

President
Jostock & Jostock

Mr. Jostock focuses his practice on complex wealth planning and corporate representation.  He handles...  |  Read More

Paul J. Rozek
Paul J. Rozek

Vice President, Tax
Selden Fox

Mr. Rozek focuses on tax and estate planning. He assists business owners and their organizations with solutions to...  |  Read More

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