Discussion:Purchase of Stock in S-Corp
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Discussion Forum Index --> Tax Questions --> Purchase of Stock in S-Corp
Webicknell (talk|edits) said: | 27 January 2006 |
| During 2005, I entered into 2 transactions, one to purchase the assets of an existing S-Corp and then to acquire the Stock in that S-corp.
I believe that the S-Corp must prepare a single 1120S for the full calendar year and the one K-1 will reflect the operations for the predecessor for the time he owned it and our K-1(s) will reflect the operations after the stock sale. Subsequent to the purchase, we did have the Fed ID number changed to reflect a clean cut, but am I correct in assuming there will be only one 1120S filed for this corporation? Wayne | |
| 27 January 2006 | |
| The method of accounting to which you are referring requires a special election under Sec. 1377(a)(2). Your accountant will know how to make this election.
Only one return is required under that election and only one EIN should be used for the corporation. | |
| 29 January 2006 | |
| To make this election, you will need the signature of the shareholder(s) you bought the S Corp from. I hope you still have good relations with the prior shareholder(s) because sometimes getting these signatures after the deal closes can be impossible.
For the future, or other readers of this discussion, this election is sometimes so important to the tax each side bears that I insist this election is signed at closing along with the other paperwork or I recommend my client walks. | |
| 21 May 2008 | |
| If you are required to file only one 1120S, how do you logistically get the books and records of the selling S-Corp owners in order to complete the tax return? I have this situation currently and am wondering how we go about this, since an amended return has to be filed for that year (2006 - this was the year of purchase) because it was done wrong. If the 1377 election is not made, are 2 separate tax returns filed? I'm still confused over this and have received conflicting responses to this question on this site as well as other sites. | |
| 21 May 2008 | |
| If you bought the S Corp shares you should have the books and records, they belong to the corporation, not the shareholder. Then you would simply close the books as of the date of sale to determine the profit to be allocated to the selling shareholder. You would still file a single tax return, the only purpose of the mid year close is to determine the amount to be placed on the selling shareholder's K-1. | |
| 21 May 2008 | |
| Unfortunately those books and records did not get turned over because the attorneys and prior accountants did not handle this transaction properly. Long story, but I think it's going to be a mess to straighten out. And it's a 2006 transaction so we have to amend, etc. Thanks for the input. | |
