Discussion:100% sale of S corp to third party
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Discussion Forum Index --> Advanced Tax Questions --> 100% sale of S corp to third party
Discussion Forum Index --> Tax Questions --> 100% sale of S corp to third party
| 7 November 2009 | |
| Have a 20 year old service business S corp, single shareholder, with $4k basis being sold to third party for $135k lump sum payment.
Clean, no shareholder loans, no liabilities being assumed. What is best way to minimize tax to seller? Thank you! | |
| 7 November 2009 | |
| Sell the stock rather than the assets and close before the end of 2009 before capital gains rates could be retroactively increased by Congress. Alternatively, you could sell under an installment agreement to spread taxes over several years, however I suspect the tax rates will be higher in the next year or two so I wouldn't necessarily recommend that strategy. | |
| 24 November 2009 | |
| Thanks. Just sold (stock) and closed. Now need to allocate this year's loss between buyer / seller. Any thoughts on that would be appreciated. | |
Harry Boscoe (talk|edits) said: | 24 November 2009 |
| Here's a thought: Does IRC Section 1377(a)(2)(A) apply? Could it? Here's where it's at: Sec. 1377
What I remember from many years ago is that whatever income or loss the *seller* is allocated on his K-1, he's gonna have exactly that much less or more gain from the sale of his stock. The K-1 income makes his basis go up, which reduces his gain, and vice versa for a loss. Can your seller get ahead by trading an ordinary loss for a capital gain? Of course the buyer just wants more loss allocated to him. Seems too bad that the selling price was determined before anybody looked at the income tax planning points. Or did they? Do you represent the seller and the buyer? Awkward, maybe... | |
| November 24, 2009 | |
| It is mostly limited to character rather than amount, but a departing shareholder is in a very vulnerable position if the sec. 1377(a)(2)(A) election is not made. The buyer is in control now; he is free to dispose of depreciated property or something, causing recognition of ordinary income, most of which will be allocated to the seller (absent the election). Or he could just contribute a bunch of cash and invest in something new that generates ordinary income. | |
