Question

how are intangible contributions accounted for in an S corporation

Answer 1

In an S corporation intangible contributions like contribution of patents or contribution of debt guarantees are accounted for as discussed below:

Contribution of patents is considered as contribution of property and the general non recognition rule will apply. In cases where the patent is acquired from the patent holder then when a subsequent sale of patent is done by the transferee, the gain which is a share of the transferor’s member will be recognized by the S corporation. The gain will be treated as a long term capital gain.

Usually there will be no recognition on the part of S corporation’s shareholders with regards to any gain or any loss associated with the transfer of the intangible property. The only condition here is that the contributing shareholder has to be in control of the corporation immediately after the transfer.