Discussion:C-Corp - Stock Sale

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Discussion Forum Index --> Advanced Tax Questions --> C-Corp - Stock Sale


Discussion Forum Index --> Tax Questions --> C-Corp - Stock Sale

Jeff-Ohio (talk|edits) said:

1 May 2014
Been so long since I've dealt with a C-Corp stock sale, but after some research, it's clearly much easier than an asset sale.

Lil' ol man is selling his C-Corp stock to a couple of investors for $500k. $200k will be paid now (in June of 2014) and the rest over the next 10 years.

Capital Stock has a value of $1,500, so it appears my lil' ol man with have a significant cap gain.

I am going to treat this as an installment sale, run a TValue of $300K at 6% over 10 years.

Is there anything I am missing?

The NOL will be lost - change in ownership

Jwebbb (talk|edits) said:

2 May 2014
So, there is no interest rate on the loan? Straight principal? I think you can probably make the interest rate a little lower if the interest is unstated by looking up the federal tax rate tables (issued every 3 months) on applicable rates for mid-term loans (I think 10 years falls into the mid-term period.) - I don't recall where you look this up but a word search should get you there.

This would help your client by shifting more income to capital gain rates and less to interest income, which is taxed at ordinary rates.

J.

Spell Czech (talk|edits) said:

2 May 2014
Jeff, "some research" isn't going to get you on top of what you need to be on top of for this one.

If there is no stated interest in the loan documents, you need to learn a whole bunch about imputed interest and the AFR ("Applicable Federal Rate") before you get into the taxes on this guy's transaction. Turns out there are Code sections that deal with this. Several Code sections. If I remember right, this isn't an area where "Oh, close enough for government work" will satisfy a nitpicking Code-thumping IRS challenge.

And please don't trust "Capital Stock" to be the Li'l ol' man's total tax basis in his stock. It may be, but it also might not be. Do a little probing about this guy's history with the stock. For example, did he *buy* the stock from a previous owner for, let's say, $100,000? That purchase wouldn't be reflected in the corporation's books...

BoulderDoug (talk|edits) said:

3 May 2014
RE the "NOL" comment, did you consider 338h10? If it's significant, it might be worth a little tax now to get higher basis on the assets.

Spell Czech (talk|edits) said:

3 May 2014
At a half-million dollars purchase price we're right at the point where we might expect the purchaser to have some sophistication, and maybe the imputed interest and the stock-vs.-assets decisions are out of the seller's hands, and already addressed by the purchaser.

That doesn't address the question of the stock basis in the seller's hands, however...

Jeff-Ohio (talk|edits) said:

4 May 2014
338h10 is an election commonly made by S Corps, right? This is a C-Corp (338). But, my client is the seller, I don't care about the purchasers, which is why we are doing a stock sale.


Good point on the cap stock - I'll look into it.

Other than that, I really don't think there is much to do except for understanding and applying imputed interest/AFR.

BoulderDoug (talk|edits) said:

7 May 2014
As the OP indicated that Jeff had not done a stock sale "in so long" and that he felt that the election was commonly made by s corps and not so much by c corps, then he, with all due respect, is lacking some sophistication in this area. It may be that the purchaser's advisors also lack this. If the NOL was big enough to wipe out most or all of the gain that would be incurred by making the election, wouldn't that make the corporation, with its stepped up basis in the assets, more valuable to the purchaser and put more money in the pocket of your client, the lil 'ol man, who you DO care about?

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