What goes into a C To S-Corp Conversion Equipment Appraisal?
Our Answer about C-Corp to S-Corp Equipment Appraisals:
The primary thing we have found when dealing with this type of equipment appraisal is focusing on the larger equipment. We have seen that an average equipment value of $2,500 and up needs to have its own line item on the appraisal. Smaller items such as hand tools, furniture, and electronics can usually be lumped into general categories to save both time and cost on the equipment appraisal.
We also find that having the CPA or Attorney hire us helps establish an arms-length transaction in case there is ever any future disputes about the equipment appraisal.
- We Know your Equipment
- Court Tested
- Master Level Appraisers
Here are some primary things you need to consider:
- A Certified Appraisal is Required by the IRS
- We Appraise at the Proper Value Level (See Below)
- Decide on a realistic line item value threshold - Ask us about this if unsure
- If there is potential Litigation - Make sure your Report is Certified
- We are Master Appraisers and Also Business Appraisers & Brokers
- We Understand the Laws and Reasons Surrounding Conversions
- We work hand in hand with your Accounting Team
Here is a brief overview from the AICPA
Corporate-level tax on built-in gain: The excess of the FMV of assets over their adjusted basis at the time of the S election is built-in gain. Any of this built-in gain recognized during the 10-year period beginning with the first day of the first tax year for which the corporation was an S corporation remains subject to corporate-level tax. Only the excess of the FMV of those assets over their respective tax basis is subject to this corporate-level tax. Post-election appreciation is subject to only one level of taxation. Thus, it is essential that an appraisal of all assets be performed at the time of the S election to document the assets on hand and to keep track of their future sale.
Appraisal of all assets means all assets, even assets that are not reflected on the corporation’s balance sheet, including self-created intangibles, such as goodwill and going-concern value, and patents and trademarks, the costs of which have been expensed. The appraisal process should be similar to that undertaken when allocating an FMV purchase for an entire business among its various assets. The importance of accurate appraisals cannot be overemphasized. There are severe civil penalties for misstating the value of property.