Partnership converted to C corp - suspended losses

Technical topics regarding tax preparation.
#1
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Client is an investor/minority owner (less than 1%) in a LLC/partnership which converted to a C corporation. He is now a minority shareholder in that corporation. The client had suspended losses from the partnership.

Does the conversion to a C corporation trigger the PAL or does he have to carry it forward until he terminates his interest in the C corporation?
 

#2
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If he had suspended losses due to basis, wouldn't he have a negative capital account? And his partnership interest was converted to shares, wouldn't he have taxable income?
 

#3
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LLC became INC, but did it have NOL or PAL? TLAs-a-gogo!
 

#4
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I should have been clearer, my fault. The losses were PAL and carried over year to year. He had plenty of basis in his partnership interest. The PALs were carried over to the current year because it is a passive activity.

My thought was this. In order for the PALs to be triggered and become fully deductible this year there has to be a qualifying disposition. Section 469(g) requires three criteria:

1) Disposition of an entire interest
2) In a fully taxable event
3) to an unrelated party

I think he fails both 2 and 3 because his remaining capital account was "transferred" (per the K-1) to the corporation. I assume in exchange for stock but have to confirm that.

Am I on the right track here?
 

#5
Spock  
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I have a situation very similar to Taxalmancer's. Are the conclusions above correct?

I've not found an answer in my research so far.

Thank you for your thoughts.
 

#6
JAD  
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There's a thread on this somewhere. I think I was the one who started it. My recollection is that the losses remain suspended until either the stock is completely disposed of or the corporation completely disposes of the assets. I can't remember which of my clients this was an issue for, otherwise I would look this up for you. If I remember later, I will post back.
 

#7
JAD  
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