Facts
In the 1990s, A.C. and a partner realized and sold a development in U. and have since been treated as commercial real estate dealers for tax purposes. Later, he acquired and renovated a residential and commercial building in Schwyz together with two partners. At the end of 2008, the three shareholders each held a 1/3 stake in the "simple partnership X."
On February 19, 2009, the previous simple partnership X. was registered in the commercial register as the general partnership Y. with A.C. and D. as partners. On April 14, 2009, the joint-stock company Z. AG with registered office in V., in which A.C. held a 50% stake, was registered. The general partnership Y. retrospectively transferred all assets and liabilities as of July 1, 2009 at book values to Z. AG.
As a result of this transfer of assets, the cantonal administration calculated an income from commercial real estate trading of CHF 238,477 for federal direct tax purposes and assessed A.C. and B.C. for the 2009 tax year with an income of CHF 401,500 for federal direct tax.
Considerations
According to the wording of the law, the tax-neutral restructuring of a sole proprietorship into a legal entity requires the transfer of a business or part of a business (Art. 19 para. 1 lit. b DBG). A business within the meaning of tax restructuring law is considered to be any organizationally and technically complex of assets that forms a relatively independent, organic unit with regard to the entrepreneurial performance of services.
The management of one's own real estate only exceptionally exhibits the characteristics of a business. This requires professional real estate management. Whether and under what conditions a tax-neutral restructuring into a legal entity can be carried out in the case of self-employment in real estate trading is disputed in…