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Subject Author Date
Section 351 or 354 or Section 721? David 11-17-2006
Posted by David on November 17, 2006, 11:30 pm
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 I would like to transfer publically traded stocks (like
Intel) from a personally titled Ameritrade account into a
new Partnership (LLC) account with Ameritrade. So long as I
maintain a majority control over the Partnership by
receiving the proper percentage of membership interest in
the LLC for the current market value of the stock
transferred, it is my belief that this would not be
considered a taxable event by the IRS under either Section
721, Section 351, or Section 354. My personal basis on
each stock investment would therefore transfer to the LLC
and become the cost basis for each investment that the LLC
owns.

The LLC will hold these investments long-term (possibly make
some new purchases with cash) and potentially (yet rarely)
sell and re-invest in other stocks (asset re-allocation).
In a sense, this would be an "investment company / LLC /
partnership". Section 721 and 351 makes note of an
exception to the rule referring to an "investment company"
(as defined in Section 351).

Also, publically held stock may be considered an
"intangible" asset. Could you please explain whether section
(d) of Section 721 ("Transfers of intangibles") needs to be
considered in regards to this transfer in order to keep it a
non-taxable transfer?

Thanks,

-David

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Posted by Brian on November 20, 2006, 10:48 pm
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 David wrote:

> I would like to transfer publically traded stocks (like
> Intel) from a personally titled Ameritrade account into a
> new Partnership (LLC) account with Ameritrade. So long as I
> maintain a majority control over the Partnership by
> receiving the proper percentage of membership interest in
> the LLC for the current market value of the stock
> transferred, it is my belief that this would not be
> considered a taxable event by the IRS under either Section
> 721, Section 351, or Section 354. My personal basis on
> each stock investment would therefore transfer to the LLC
> and become the cost basis for each investment that the LLC
> owns.

The partnership basis will be FMV on the date of
contribution, not your cost basis. Any pre-contribution gain
must be recognized by you when the security is sold.
Pre-contribution losses are more complex.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by aufein on November 26, 2006, 11:13 am
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Brian wrote:
> David wrote:

>> I would like to transfer publically traded stocks (like
>> Intel) from a personally titled Ameritrade account into a
>> new Partnership (LLC) account with Ameritrade. So long as I
>> maintain a majority control over the Partnership by
>> receiving the proper percentage of membership interest in
>> the LLC for the current market value of the stock
>> transferred, it is my belief that this would not be
>> considered a taxable event by the IRS under either Section
>> 721, Section 351, or Section 354. My personal basis on
>> each stock investment would therefore transfer to the LLC
>> and become the cost basis for each investment that the LLC
>> owns.

> The partnership basis will be FMV on the date of
> contribution, not your cost basis. Any pre-contribution gain
> must be recognized by you when the security is sold.
> Pre-contribution losses are more complex.

I disagreed with the previous posting. Generally
contribution to a partnership is tax-free and therefore the
basis in the partneship interest (outside basis) is the
carryover over basis in the property contributed plus
pro-rata share of liabilities assumed. Sec.721. There may be
build-in gain in the property that is required to be
recognized upon certain conditions. Additionally, I was
wondering why Sec.351 is mentioned. 351 governs
contributions to corporations only. Contribution to the LLC
that is a single member LLC is igrnored since such LLC is
disregarded from its owner. I assume the LLC Partnership
discussed above is an LLC with two owners.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Stuart A. Bronstein on November 28, 2006, 1:22 am
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aufein@gmail.com wrote:

> Additionally, I was
> wondering why Sec.351 is mentioned. 351 governs
> contributions to corporations only. Contribution to the LLC
> that is a single member LLC is igrnored since such LLC is
> disregarded from its owner.

An LLC can elect to be taxed as a partnership (or proprietor
if only one owner), or as a corporation. If taxed as a
corporation section 351 would certainly be a factor.

> I assume the LLC Partnership discussed above is an LLC with
> two owners.

Because only a two (or more) member LLC is a legitimate
entity? Perhaps in some states, but not in California.

Stu

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Drew Edmundson on November 28, 2006, 9:22 pm
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> I would like to transfer publically traded stocks (like
> Intel) from a personally titled Ameritrade account into a
> new Partnership (LLC) account with Ameritrade. So long as I
> maintain a majority control over the Partnership by
> receiving the proper percentage of membership interest in
> the LLC for the current market value of the stock
> transferred, it is my belief that this would not be
> considered a taxable event by the IRS under either Section
> 721, Section 351, or Section 354. My personal basis on
> each stock investment would therefore transfer to the LLC
> and become the cost basis for each investment that the LLC
> owns.
>
> The LLC will hold these investments long-term (possibly make
> some new purchases with cash) and potentially (yet rarely)
> sell and re-invest in other stocks (asset re-allocation).
> In a sense, this would be an "investment company / LLC /
> partnership". Section 721 and 351 makes note of an
> exception to the rule referring to an "investment company"
> (as defined in Section 351).
>
> Also, publically held stock may be considered an
> "intangible" asset. Could you please explain whether section
> (d) of Section 721 ("Transfers of intangibles") needs to be
> considered in regards to this transfer in order to keep it a
> non-taxable transfer?

The paragraph you need to look at is 721(b), assuming the
LLC is really a partnership for tax purposes.

---
Drew Edmundson, CPA
Cary, NC

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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