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Mergers & Acquisitions/S-Corp/LLC Acquisition Taxable Event
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Question
20 months ago the assets of my S-Corp were acquired by an LLC with cash and stock in the LLC. Our accountants informed us that we would need to hold the LLC shares in the S-Corp or it would be a taxable event, so we did. We (My 2 partners and I) would like to personally own the LLC shares and disolve the S-Corp without causing a taxable event. Is this possible?
The short answer is no, it is not possible to liquidate and dissolve a S corporation without causing a taxable event. The actual tax due, if any, depends upon your basis in the shares and, in some cases, on a concept known as "built-in gains."
It sounds like your accountants, who are most familiar with your specific facts, are knowledgeable in the area. You should discuss with them whether there are any strategies in your situation that may reduce the tax on the dissolution. It may simply be better to follow the existing plan and continue to hold the LLC interests in the S corporation or it may be better to take a hit now if continuing to hold the LLC interests inside the S corporation compounds the current problem.
David Staub
http://www.stahlcowen.com/attydetail.cfm?id=42
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Answers by Expert:
David K. Staub
Expertise
I am a business and tax attorney and have spent more than 30 years assisting people in buying, selling, merging and spinning off businesses. I can answer questions on the mergers and acquisitions process and the related legal issues, in general. Topics can include structuring the transaction, negotiating the deal, conducting due diligence, and more. I can also guide people to find sources for answers to specific legal questions which cannot be answered in a forum of this nature.
Experience
I have been an Illinois business attorney for almost 30 years. I have an extensive practice in the mergers and acquisitions area and have been involved in the tax and legal issues on hundreds of business transactions.
Website
Staub Anderson Green LLC
Chicago, Illinois
Mergers & Acquisitions
Illinois business attorneys
Practice Areas
Business Organizations
-Corporations
-LLCs
-Partnerships
-Joint ventures
Mergers & Acquisitions
-Buying/selling business
Securities Law
Tax Law
Technology Law
-Software licenses
-Development agreements
Trademarks
Disclaimer
Responses are intended to be informational only. No response is intended to constitute legal advice or create an attorney-client relationship. Online advice is not a substitute for consultation with an attorney.
Organizations
Illinois State Bar Association; Chicago Bar Association (former Chairman of the Corporation & Business Law Committee and former Chairman of the Mergers and Acquisitions Subcommittee; former Executive Committee member, Federal Tax Committee and Chairman of subcommittee on general tax issues); Glenkirk Foundation (Trustee; Vice-Chairman/Strategic Planning); Association for Corporate Growth, Chicago Chapter; Midwest Entrepreneur Forum; Midwest Association of Alpha Delta Phi - President
Publications
Commerce Magazine; YLS Journal; ISBA Section of Taxation Newsletter; Internet Law Forums
Education/Credentials
Harvard Law School, J.D., 1977; University of Illinois, B.S. in Accounting, with highest honors, 1974
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