Discussion:Sale of an S Corp
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Discussion Forum Index --> Tax Questions --> Sale of an S Corp
| 29 June 2006 | |
| When a sole shareholder sells an S Corp (Asset Sale)the Section 1231 Gain or Loss is reported on Form K-1 and therefore passed out to the shareholder along with the final year ordinary income or loss.
Now we have a Balance Sheet with no fixed assets, only cash, maybe receivables and liabilities, large note due to shareholder and equity. Should there also be a liquidation of the corporate stock? Could this be considered a Sec 1244 loss on the liquidation? As always, Thank you all for your guidance. L. | |
| 29 June 2006 | |
| If there is no basis and liabilities exceed assets then I would assume that there are suspended lossed that are deductible upon disposition of the S-Corp interest. Otherwise the assets & liabilities are simply distributed and the company just closes. Has part of the shareholder loan been used as basis? | |
Mtmckeecpa (talk|edits) said: | 29 June 2006 |
| You could liquidate, you have to look at the numbers.
1244 does apply to S corps but, as I understand it, the guidelines are strict. In addition, it is my understanding with S corps that you CAN'T use any undistributed earnings to increase the 1244 loss and losses and other deductions passing through an S corp must be taken into account before any 1244 loss applies. IRC 1367(b)(3). I've never worked on a 1244 but from what I understand with an S corp, generally, there is not much left to deduct under 1244 because of the pass through of losses and you can't use undistributed earnings. May not always be the case but that is what I hear. I use PPC and they have some good reference material on 1244. | |
| 29 June 2006 | |
| I've been told that the S Corp can't actually have a 1244 loss due to the basis reductions, etc. which kind of wash it all out once you're done. I've watched my liquidations since I learned that a few years back and have discovered that it's been true...not to say that it can't happen somehow. | |
| 29 June 2006 | |
| Guys, you do have to liquidate the corporation -- Form 966 and all.
Cash would be a liquidation distribution, gain, loss or wash. | |
| 29 June 2006 | |
| Good responses.
So if there is cash $1,000; loan to officer of $97,000 (loan basis = $16,000); Retained Earnings neg -2,000 and capital stock of 1,000, there would be a capital loss of $ 18,000 ($1,000-2,000-1,000-16,000). Make any sense? It does to me, but my thought process always does. L. | |
| 29 June 2006 | |
| I knew something was wrong there...if loan to officer is 97k...uh, something aint' right.... | |
Mtmckeecpa (talk|edits) said: | 29 June 2006 |
| Yes, in order to take a 1244 loss you do have to liquidate, absolutely. | |
| 10 July 2006 | |
| Dennis, sorry for leaving the balance sheet incomplete and leaving the discussion forum.
Needed to leave for an appointment and then on to vacation and tried to quickly make the #'s fit my questionable outcome. But basically, just needed to clarify my thought process about the sale at the corporate level and then the liquidation of stock. Am all set for now. When I have an actual situation, might be back... Thanks to all for the input. Talk soon, L. | |
| 15 December 2006 | |
| I have a situation where there is no basis, negative retained earnings, current negative income, complete disolution of s corp, shareholder loan used as basis in prior year. What do you do with the shareholder loan? This is my first dissolution. If I allocate the cash against the assets, it leave me short on the liability. Is that a shareholder distribution, or a bad debt to the corp? Also, 2nd situation, (same owner, two s corps sold as one so I had to allocate sales cost and expenses between the two). The second S corp has a debt to a bank as well as a shareholder loan. If I take the cash against the assets, it leaves me short on the loan to the bank, so do I pay the liability off first and then take a loss/depreciaton recapture on the assets?
Any help will be appreciated. Thanks | |
