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 2, 2021

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 the identification and valuation of assets subject to BIG tax and discuss strategies to offset BIG through planning steps before the S corp conversion.

Description

Converting from C corporation to S corporation status can benefit many companies from tax and operation standpoints. C corporation owners can convert their company to an S corporation without triggering an immediately taxable transaction in most cases. However, several potential tax traps 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 occurs when an S corporation sells or distributes certain specified assets within five years after its conversion date from C corporation status, or when a converted S corporation acquires assets with a 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 before 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 1374 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 the conversion planning process
  2. Valuation requirements and options
  3. Projecting BIG tax impact post-conversion
  4. Transactions during the 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 advisers employ to minimize the BIG tax impact on assets pre-conversion?
  • Handling LIFO inventory matters on the conversion

Faculty

Barrie, John
John P. Barrie

Partner
Bryan Cave Leighton Paisner

Mr. Barrie specializes in federal and state tax controversy and transactional matters, and he has spoken on state...  |  Read More

Dyer, Marcus
Marcus E. Dyer, CPA, JD

Team Leader of Tax Controversy
WithumSmith+Brown

Mr. Dyer manages and reviews all aspects of federal and state tax compliance for C-corporation, S corporation and...  |  Read More

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