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Corporate Reporting Rules: Help Is on the Way

The IRS recently announced sweeping changes in the tax filing requirements for corporations and their shareholders. These new rules are expected to reduce administrative burdens and increase the number of electronic filings.

In fact, the new rules revise more than 20 regulations involving corporate and shareholder reporting requirements. They apply to corporate transactions such as transfers to a corporation, mergers, spin-offs and liquidations.

Although the new changes are designed for large corporations—at least for the most part—they may also benefit owners of small corporations. Prime example: Under the new rules, the requirement to file information statements for a Section 351 transfer (e.g., an exchange for corporate stock where no gain or loss is recognized) is now limited to “significant shareholders” and certain security holders. For this purpose, a “significant shareholder” is defined as someone who owns 5% or more of a public corporation or 1% or more of a privately held corporation. A security holder is significant only if his or her basis in the securities is $1 million or more. The IRS says that these changes will drastically reduce the number of shareholders who must file reports.

In addition, the revised regulations limit the information that must be reported to these four items:

1. The name and employer identification of the company;

2. The date of the asset transfer;

3. The fair-market value and basis of the assets transferred; and

4. The date of any IRS private letter ruling.

The revised rules also eliminate several roadblocks to taxpayers providing their signatures. This will allow more taxpayers to file their returns electronically.

Of course, you will still need a professional tax adviser to help handle these complex corporate transactions. But these new rule changes can ease some of your pain.

 

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