We are talking to a prospect that would like us to look into what would be involved for a tax free merger for several entities.
They have three LLC's, two taxed as partnership and one taxed as an S-Corp. All are owned by the same three people and they all own 1/3. They would like to form a DE LLC taxed as an S-Corp and merge all the entities together. The partnerships have cash and loans from partners with positive equity. One of the partnerships does have a Truck that is being depreciated. The S-Corp is a construction company with trucks and equipment
The S-Corp is accrual and the two partnerships are cash. The new DE LLC is going to be accrual with everything in it.
Since tax free reorgs are for corporations and not partnerships my thought was to do this.
Merge the S-Corp into the new DE LLC as a type A merger. Then, for the two partnerships, have the partners take a final liquidating distribution then contribute the cash, loan from partners, and the truck to the new DC LLC under section 351.
It seems straight forward but I feel like I am missing something. Would there be any step transaction issues?
