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Can a corporation "give" a piece of property it holds to an individual? What are the tax consequences for both parties?

Los Angeles, CA |

Our corporation owns a piece of property and would like to transfer the title to an individual, can this be done as a direct gift from the corporation to the individual? What tax implications will both party face? Thanks.

Attorney Answers 5

Posted

Officers and directors have a fiduciary duty not to give corp property away. Be sure all the directors and shareholders approve. Why are you giving it anyway? The reason for the gift determines whether gift tax or income tax attaches to the transfer. If the individual performed services, he would owe income taxes on it, and the corp could deduct the value. If not it would be a gift. Ordinarily the donor is liable for gift taxes, but I have never heard of a corp donating to an individual. If the gift were to a 501(c)(3) nonprofit organization, the value would be deductible by the corp. Consult an estate planning lawyer if it is truly a gift.
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(Bryant) Keith Martin
sbbizlaw.com

Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

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Asker

Posted

Thanks for your comment. To respond to your inquiry as to why we are giving it away, is that we don't want the mortgage payments for the property on our books, so we just want to get rid of the property. The individual is willing to take over and assume the payments. If it does qualify as a gift, is the gift tax rate for corps different than individuals? I'm assuming there's no unified tax credit for gifts for a corp?

Bryant Keith Martin

Bryant Keith Martin

Posted

Gift tax is imposed on "individuals" only. See IRC Sec 2500(a)(1). So corps do not owe gift tax. As long as everyone who has an interest in the corp, i.e. shareholders, creditors and directors, approves the transaction I see no reason that the corp needs to receive fair market value or any consideration at all.

Posted

Under IRS guidelines an individual can give up to $13,000 per person as an annual gift to individuals before a gift tax can potentially become due. Individuals also have a $5 Million gift tax exclusion once they go over the annual exclusion amount. If a gift tax becomes due it is the responsibility of the donor to file a gift tax return and pay any gift tax that is due.

There is no legal limit as to how much gifts an individual can give in a given year, it is just how much the donor may be taxed on the transfer. Similarly, a corporation, or an LLC that is taxed as a corporation can make gifts. However, possible legal issues arise when the relationship of the person receiving the "gift" is reviewed in relation to the owners and /or managers of the entity,

Corporations do not typically make gifts to individuals for no apparent reason. This would typically be a breach of the fiduciary duty that the directors and officers have to the shareholders of the corporation. These transactions are often done to dodge or skirt some legal obligation to creditors or others. If that is the case, the managers or owners could be held liable for mismanagement of the corporate assets. The IRS may also re-characterize the transfer as a constructive dividend for the corporation. A worse result could be that the IRS considers the transaction tax fraud.

A corporation should not transfer assets of the corporation without receiving fair market value for the transfer. This will take care of the legal problems and the tax issues. Another option is to form a non-profit corporation, donate the asset to the corporation taking a tax deduction for the corporation, and the non-profit using the asset to further its charitable purpose.

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

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Posted

It would not be upholding its duties to shareholders if it gave away property for no reason. If it is for services rendered, there will be income tax on it. If it is a gift, there may be gift tax owing by the corporation on it. If it is a small corporation giving something to itself, there may be serious self dealing issues that may obviate the protections of the corporate status.

Use the AVVO.com web site to find an attorney in your area. In addition to that, contact your local bar association for referral to an attorney who specializes in this or talk to friends and neighbors to ask about an attorney they have used and liked. Often, but not always, the attorney will do an initial consultation free of charge. You will then be in a better position to determine what to do next. Best of luck to you!

If you liked this answer, click on the thumbs up! Thanks. Eliz. C. A. Johnson Post Office Box 8 Danville, California 94526-0008 Legal disclaimer: I do not practice law in any state but California. As such, any responses to posted inquiries, such as the one above, are limited to a general understanding of law in California and not to any other jurisdiction. In addition, no response to any posted inquiry should be deemed to constitute legal advice, nor to constitute the existence of an attorney/client or other contractual or fiduciary relationship, inasmuch as legal advice can only be provided in circumstances in which the attorney is able to ask questions of the person seeking legal advice and to thus gather appropriate information.

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Posted

It would not be upholding its duties to shareholders if it gave away property for no reason. If it is for services rendered, there will be income tax on it. If it is a gift, there may be gift tax owing by the corporation on it. If it is a small corporation giving something to itself, there may be serious self dealing issues that may obviate the protections of the corporate status.

Use the AVVO.com web site to find an attorney in your area. In addition to that, contact your local bar association for referral to an attorney who specializes in this or talk to friends and neighbors to ask about an attorney they have used and liked. Often, but not always, the attorney will do an initial consultation free of charge. You will then be in a better position to determine what to do next. Best of luck to you!

If you liked this answer, click on the thumbs up! Thanks. Eliz. C. A. Johnson Post Office Box 8 Danville, California 94526-0008 Legal disclaimer: I do not practice law in any state but California. As such, any responses to posted inquiries, such as the one above, are limited to a general understanding of law in California and not to any other jurisdiction. In addition, no response to any posted inquiry should be deemed to constitute legal advice, nor to constitute the existence of an attorney/client or other contractual or fiduciary relationship, inasmuch as legal advice can only be provided in circumstances in which the attorney is able to ask questions of the person seeking legal advice and to thus gather appropriate information.

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Posted

I echo the answer given before. I get nervous when properties or assets are "gifted" to individuals. Not being a tax attorney, but knowing better, I always advice my clients to consult with ther CPA about the tax consequences of gifting assets, be it by an individual or a corporation.
The consequences can be sometimes substantial and irreversible.

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