Discussion:Selling Assets - Tax Affects to Seller?
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Discussion Forum Index --> Tax Questions --> Selling Assets - Tax Affects to Seller?
| 31 July 2008 | |
| I am a newer CPA and need some guidance. Client is an S-Corp and is selling some of their assets, including intangibles (goodwill, covenant not to compete, contracts, etc.) to a corporation. They are receiving cash, a note, and stock in the new corporation. S-corp is not selling their cash, a/r and liabilities and will "dissolve" the S corp once receivables are received and liabilities are paid.
Are these assumptions below correct (I am interested in Seller's tax consequences)? The cash received will be allocated based on Section 1060 rules and applied to the assets's FMV's and taxed as gains, either capital or ordinary. The note will be treated as an installment sale and will be reported as ordinary income in the years to come. The stock received will have a zero basis (???) and will be taxed as it is sold by the s/h - correct? | |
| 31 July 2008 | |
| it won't be a ยง351, and there should be basis in the stock
will S corp then distribute newcorp stock out to shareholder and liquidate? If so there could be additional basis to be picked up there. | |
RoyDaleOne (talk|edits) said: | 31 July 2008 |
| For what reason is the S Corp being dissolved? I don't know why.
In my opinion the recap of the seller's tax consequences is incomplete and not accuruate. Can you ask someone to help with this? | |
| July 31, 2008 | |
| Selling 'some' of the assets, to us, you're selling off the corp, albeit over time as you collect remaining AR and the note. There are some very nasty rules on note distributions, which make me seem to recall that holding the corp open for collecting them is preferable. Yes, cap gains and income recognized at corp level, passing thru K1's, profit distributions to s/h's, final sale of their stock, usually doesn't have any basis by the time you're done. Very messy stuff, after 20 years, I still have to slow way down, work thru it eight times and talk to other people to be sure it's right before I talk to the client. And the last one, I still blew, forgetting the deprec. recapture wouldn't be offset by cap losses. Get help. | |
| 31 July 2008 | |
| JR there is only a 'note' problem if the note is distributed NOT in complete liquidation. | |
| 31 July 2008 | |
| S corp shareholders plan on working for the new company and will keep the stock of the new company. They will not be in control of the new company. They are dissolving the old company.
I am part of the mergers and acquisitions team and will not specifically be handling their taxes. I do want to give them a general picture of what to expect tax wise from the sale. Comments? | |
| 31 July 2008 | |
| do a 'dummy' return and flesh it out based on the numbers
this might take several steps, but you are getting paid for it. | |
RoyDaleOne (talk|edits) said: | 31 July 2008 |
| Well your M&A team needs a tax professional to answer, or even outline the potential tax effects of the transaction(s).
Read Circular 230..... | |
| 31 July 2008 | |
| also, whether the note creates ordinary or capital gain will depend on the basis of the assets sold.
Presumably you have all of the numbers. | |
