Hello,

I have quite a difficult question, that I have not been able to find a sure answer to.

I have someone who is switching from his S-Corp to LLC (I know, I gave him my opinion/advice, but it's his choice).

Normally, when changing entity type from LLC to Inc, you can do Property in exchange for Stock and as long as the owner meats the ownership requirement then that event is tax exempt.

My question, is there an equivalent step when switching from Inc to LLC. Would one do Stock in exchange for property? Would this still be tax exempt if the ownership test is met?

I could not find anything on the specific situation so far.

Any help is greatly appreciated.

#1; aslongsas you transfer property/ money to a corp solely in exchange for stock in that corporation other than nonqualified preferred stock, and immediately thereafter you are in control of the corp, the exchange is usually not taxable. This rule applies both to individuals and to groups who transfer property to a corp. It also applies whether the corp is being formed or is already operating. It does not apply if the corp is an investment company. The property is transferred in a bankruptcy or similar proceeding in exchange for stock used to pay creditors.
The stock is received in exchange for the corporation's debt other than a security or for interest on the corporation's debt including a security that accrued while you held the debt; no gain or loss is recognized provided, you receive ONLY STOCK in exchange for your property.

#2; I tonly applies to transfers to controlled corps. To move assets from a corp to an LLC would involve a corporate liquidation, then transfer to a LLC, or formation of a LLC in which the corporation is a member.

Exactly. So, what I'm trying to figure out is if the this event is tax exempt (in how it is when doing "Property in Exchange for Stock"). Normally, the amount the property is sold for (being the worth of Stock owned in the Corp) would normally be subject to taxation.

Is there maybe an exemption to this in the case of just an entity change? Any way to transfer the property from the Inc (100% controlled) to the LLC (sole member) without paying having to pay the taxes for that property since the practically nothing is really changing in ownership or operation.