I own an S Corporation and I'm planning to sell many of the assets in the business to another company. After researching the different deal structure options, I've recently learned that there could be consequences if the S corporation was previously a C corporation? Is this true?

ANSWER

The BIDaWIZ Team's Answer:

Yes, this is a very good question. S Corporations that sell assets within 10 years of converting from a C Corporation are generally subject to a built-in-gains tax as referenced in the Internal Revenue Code Section 1374(d)(1). The built-in-gains tax imposes a corporate level tax on the portion of the gain that existed as of the C to S conversion date. There's been some temporary relief in which the recognition period has been reduced to 5 years.