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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

Note: CLE credit is not offered on this program

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

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Conducted on Wednesday, July 17, 2024

Recorded event now available

or call 1-800-926-7926

This course 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
McLaughlin & Stern

Mr. Barrie graduated from UCLA with a BA in Political Science, from University of California – Hastings College...  |  Read More

Dyer, Marcus
Marcus E. Dyer, CPA, JD
Principal, Team Leader of Tax Controversy
Withum Smith+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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