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3/9/2011 7:00:00 AM Write a Letter to the Editor Write a letter to the Editor

Opinion: S Corporations and Trucking

Built-in-gains tax will apply on the disposition of appreciated assets held at the conversion date for the first 10 post-conversion years. Any gains recognized on the disposal of these assets will be taxed at the corporate level with the net gain flowing through. However, careful tax planning can effectively minimize and possibly eliminate the built-in-gains tax. Recent legislation has reduced the 10-year period for dispositions in 2009 through 2011. While the continuation of this trend cannot be assumed, many observers are hopeful that a shorter holding period will become permanent law.

• “Certain states do not recognize S corporation status.”

The majority of states allow companies to elect S corporation status for state tax purposes. However, careful planning can minimize state tax expense in the states that do not allow S corporation status.

• “The matter of tax reporting and compliance is more complicated, isn’t it?

Though some of the regulations and requirements for S corporations differ from C corporations, the general compliance procedures and burdens are very similar. In addition, companies treated as S corporations are generally not required to prepare and book a tax provision on their financial statements. 

• “What about legal liability? We have an elaborate structure to minimize our legal risk.”

S corporations provide the same legal protection as C corporations (consult your attorney). An important aspect of the S corporation conversion process involves detailed analysis of the corporate structure but very rarely requires any restructuring. “Consolidated” tax status has been available for S corporations since the 1997 tax act allowing companies to have subsidiaries such as wholly owned S corporations or single or multimember LLCs.

So, what’s next?

Transportation companies should carefully consider a conversion to or from S corporation status before proceeding. The tax benefits are significant and the analysis is well worth the effort. Contact a tax adviser for more answers to your questions.

Grant Thornton International Ltd., Chicago (U.S. headquarters), is a global audit, tax and advisory firm.

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