Discussion:S-Corp - shareholder resigned shares

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Discussion Forum Index --> Advanced Tax Questions --> S-Corp - shareholder resigned shares
Discussion Forum Index --> Tax Questions --> S-Corp - shareholder resigned shares

Stems07 (talk|edits) said:

26 September 2007

I'm meeting w/ a new tax professional next week and was hoping that I could get an idea of my situation to better communicate with this tax professional. I was 50/50 partners in an S-Corp until 12/31/06, at which time my former partner in the business resigned his 50% ownership and effectively left the company. He had around 50k in additional paid in capital on the books that he forfeited when he walked and he was not paid for this. Am I to assume that this paid in capital is now credited to me? Do I get his shares now that he is gone? Does he claim a loss equal to his paid in capital, basis, or whatever it's called?

Any brief insight would be greatly appreciated.

Thanks, Scott

Taxref (talk\|edits) said:	26 September 2007
I'm afraid the accountant will have to look at the documents to sort this one out. Based on your message, you seem to be mixing S corporation and partnership ownership issues together. S corp ownership is based on percentage of shares owned, not on capital balances. Hopefully everything was done correctly based on S corporation rules.

JR1 (talk\|edits) said:	September 26, 2007
He can claim a loss...but that doesn't increase your basis.

Blrgcpa (talk\|edits) said:	26 September 2007
Where are his shares? Were they turned into the s-corp or are they still outstanding?

Stems07 (talk|edits) said:

26 September 2007

Thanks for the responses.

His shares were turned into the S-corp and he's no longer part of the business, yet he has $50k in additional paid in capital that will not be paid back.

JR1, can he claim a loss equal to his "basis" in his shares at the time of surrender? I'm not sure what to do with his additional paid in capital.

Stems07 (talk\|edits) said:	26 September 2007
Can anyone recommend where I can read about this as oppossed to further troubling each of you on this board? Thanks - Scott

JR1 (talk\|edits) said:	September 26, 2007
Yes, he claims a loss for his basis, and it should be ordinary on 4797 if it was 1244 stock, orig issue to him. The corp only has one entry for TStock, but no amount...His add'l paid in capital just remains there. But your basis is still your basis.

Stems07 (talk\|edits) said:	26 September 2007
I see, JR1. So, our original $1000 of Common Stock will still remain on the books? I don't understand when you say the corp has an entry for TStock - does this mean I need to record this in the corporate records only? Thanks for helping me understand.

JR1 (talk\|edits) said:	September 26, 2007
Yes, that the corp has now received his shares. Since there's no dollar amount, nothing on corp books. Just the legal book.