Gain from S election

Technical topics regarding tax preparation.
#1
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LLC makes S election with negative equity... d'oh!

On Schedule L beginning of tax year columns would you put the negative equity on line # 23 APIC? What about line # 25 - Adjustments to shareholders equity?

Could a promissory note from shareholder actually work to prevent the gain?
 

#2
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Search "357"...lots of good discussion on how to deal with this
~Captcook
 

#3
JR1  
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The note is acceptable in one circuit, maybe the 8th? Leaving out some debt is the usual solution.
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#4
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Can you really leave out the debt on the vehicles if both the individual's and LLC's name are listed?
 

#5
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There is a prescribed form ("assets over") for this transaction in 301.7701-3(g)(1)(i):
If an eligible entity classified as a partnership elects under paragraph (c)(1)(i) of this section to be classified as an association, the following is deemed to occur: The partnership contributes all of its assets and liabilities to the association in exchange for stock in the association, and immediately thereafter, the partnership liquidates by distributing the stock of the association to its partners.


Taxpayers in Lessinger v. Commissioner, 872 F.2d 519 (2nd Cir. 1989), and Peracchi v. Commissioner, 143 F.3d 487 (9th Cir. 1998) contributed notes to avoid 357(c) gain. Contributing a note could work (in the 2nd and 9th circuits for sure) if taxpayer could hurtle backwards through time to the close of business the day before the S election became effective to make the contribution :D
 

#6
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Y'mean putting "as of" in the recitations in the note payable isn't enough? We need to hurtle?
 

#7
Nilodop  
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And backwards, no less, which makes for quite a hurdle to jump as one hurtles.
 

#8
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no no ...taxpayer can face forward :D
 


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