IS 1042 ESOP rollover treatment available to a C Corpoation that owns

[Guest NPaleveda]

IS 1042 ESOP Rollover treatment availale t a C Corpration that owns real estate?

[BeckyMiller]

Can you clarify your question please? Do you mean that the corporation wants to make the 1042 election? Do you mean that the shareholder of this corporation wants to make the election? If the corporation owns real estate, is it an operating real estate company that has employees?

[Guest NPaleveda]

I mean the shareholder is elcting 1042 rollover status and wishes to roll his gain over t a C corpoation that has land and mnaged real estate-NP

[BeckyMiller]

It would have to be an operating company which is defined in IRC Section 1042©(4)(B). Further, it cannot receive more than 25 percent of its gross income from passive sources for the preceding taxable year. (IRC Section 1042©(4).) Passive income is defined in IRC Section 1362(d)(3)© and includes rents.

[Guest NPaleveda]

Look at the Regulations which states that 1042 rollover treatment is avilable to "domestic Corporaions" that do not he "passive investment income as defined in 1362(D)-when you go to 1362(D) the section discusses optons and commodities-1362© starts off with "passive Investment income" isthis a Code typo???-NP

[Guest NPaleveda]

Becky the problem is the Regs. do not send you to 1362©-they send you to 1362(D)!-NP

[BeckyMiller]

Not a typo - old regs. The Code has been updated for the revisions to Section 1362, but the regulations were issued under the old version of the Code. In 1985, the definition of passive income was found in part d.

[Guest NPaleveda]

Also is rents defined as actie rental income which isnot considered as "rents" in the regs. or "rents". My client wants to do a 1042 rollover with a company that they actively rent duplexes and fix up the property-would that constitute "passive investment income". Also how long do they have to obey this 75-25 rule under 1042-NP

[BeckyMiller]

At this point you have really moved out of Benefitslink and into SubSlink... I am not sure such a site exists, but I would go to an S corporation person or an individual tax specialist as passive income is a big deal for individuals, too.

[Guest NPaleveda]

It looks like rents do not include active renal income according to the regs.-Only triple net income and the like constitute rents-butis another interpretaion available?-NP