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S Corporation Stock & Asset Sale

TampaBayCPA
Level 1

Hi All,

Need some guidance on the following situation. Client selling S Corporation with the following details:

1) Selling FF&E and building as an asset sale

2) Selling corporate shares as a stock sale

I currently used the depreciation screens to report the building and FF&E sale which will show up on the K-1.

My question is how to report the sale of the s corp shares. Is that performed on schedule D of the 1040 or on the 1120S? How do you factor in the shareholder basis for the sale? Do you simply report the sale of the shares on SCH D and use the stock basis and loan basis as your cost basis? Or is there a way to show the sale on the K-1 screen on the 1040? Mostly concerned that the client may lose benefit of their basis by reporting this incorrectly in Lacerte.

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7 Replies 7
sjrcpa
Level 15

The sale of the shares is reportable by the shareholder on their 1040, Schedule D/Form  8949 9049, using their stock basis after all S Corp transactions including the asset sale and distributions.

What is happening to the loan in this transaction?


ex-AllStar
qbteachmt
Level 15

"using their stock basis after all S Corp transactions"

Did the S corp really also own the Building? Was the loan the Mortgage? The sale of the hard assets affects the value of the S corp's stock.

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abctax55
Level 15

Susan meant F 8949.... I think ๐Ÿ˜‰

And I agree... something seems outta whack here.  I'm not sure you can sell the assets AND the stock to the same party - or why you'd want to...unless....

IF you are trying to get capital gain treatment for the seller, and asset acquisitions for the buyer (for depreciation benefits..) look at ยง338 to see how that can be made to work.

Former Chump..umm... AllStar...This message was typed from 6 feet away so you can safely read it immediately.

If a post answers your question, click on *Accept as solution* for future searches
Ephesians3-14
Level 7

My same question....never seen an S Corp sell the stock and its assets. Strange.

 

rbynaker
Level 11

@Ephesians3-14 wrote:

My same question....never seen an S Corp sell the stock and its assets. Strange.

 


Without some bizarre provision in the sale agreement (which, BTW would have to be between three parties: buyer, seller and S Corp) then the buyer would, in effect, just be purchasing their own cash which they paid to the S Corp for the assets.  Then they own a bunch of assets outside of the S Corp.

Most buyers do an asset purchase because they get a fresh start on depreciation AND they avoid buying the "history" of the corporation (i.e. unfiled lawsuits).  I could maybe see some hypothetical situations (mostly involving intellectual property) where this structure might make some sense but even for those there's probably a better way to structure things than both an asset and stock purchase.

My guess is that someone got some bad tax/legal advice from their bartender or hairdresser.

rbynaker
Level 11

That's an odd arrangement, I'm not even sure where to start!  Are the assets being sold to a different buyer than the stock?

Before you approach the tax return you need to figure out the bookkeeping.  Just take it one transaction at a time.

S Corp sells the assets so Cash increases, Fixed Assets decrease and there's a Gain/Loss.  S Corp owner sells shares, this happens outside the corporation so nothing to book there directly (but it will impact the K-1 allocations).  You mentioned loan basis but first we need to know what happened to the note payable between corporation and the selling shareholder.

Sounds like a mess.

Edit: Sorry, started typing before there were any replies and then got sidetracked!

qbteachmt
Level 15

"Edit: Sorry, started typing before there were any replies and then got sidetracked!"

I do that, too; open the tab, but don't update it right away.

"what happened to the note payable between corporation and the selling shareholder."

Oh, good mind-reading attempt. Once again, more details sure would be helpful and perspective makes all the difference.

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"Level Up" is a gaming function, not a real life function.