Discussion:S Corp stock buyout
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Discussion Forum Index --> Advanced Tax Questions --> S Corp stock buyout
Discussion Forum Index --> Tax Questions --> S Corp stock buyout
| 10 March 2008 | |
| S Corp owned by 2 unrelated parties. On 1/1/07 Ptr 1 buys out Ptr 2 for $50k. The legal paperwork states this is a transaction between the 2 shareholders, with the one buying the stock of the other.
Ptr 1 secured a loan for $50k in the name of the S Corp to buy this stock and booked the entire transaction in the S Corp, complete with a debit to Retained Earnings for the amount of the purchased stock. Seems to me that we need to follow the arrangement that the lawyers lay out in the legal paperwork and that this transaction should not be on the books of the S Corp at all. My question is how to unravel this and what would be the best for the shareholders? In the end, it doesn't make much difference as far as the profits flowing to tax returns. | |
| 10 March 2008 | |
| Change the paperwork or add to it. Nothing says the remaining shareholder couldn't redeem the shares after the initial purchase. | |
| March 10, 2008 | |
| I agree with you, Mich. And it is best to do a cross purchase since Ptr 1 gets way more basis now for the buyout. If the corp redeems instead, no change in basis for the money. | |
Rgtaxservice (talk|edits) said: | 11 March 2008 |
| Today must be my day for stupid questions again.
What is a cross purchase? I read this as the corp buying back its shares from a shareholder by the fact that its the S corp, not Ptr1, that secured the loan and purchased the shares. Ptr 1 ownership % would increase but his basis would remain the same. What I am missing? | |
