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    Short Year 1120

    I have a long-time C Corp client who sold 100% of the company (100% of the stock sold, no assets were sold) during the year to a new owner. The new owner (who has thier own accountnat for the future) would like me to do a short-year 1120 up to the date of sale. Does such a scenario as this (100% sale of stock) justify filing a short-year return. I sure hope a short-year return can be filed to make the cutoff as clean as possible.

    #2
    no short-year

    Since stock was sold, the C Corp itself continues uninterrupted. Will just file a regular full-year return.

    From an accounting perspective, they may want to do some calculations now so they can see how the company performs under the new ownership.

    Bill

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      #3
      But what if............

      Thanks Bill for that insight, but what if the buyer is a Corp. who will be re-organizing all the assets into one of thier other companies (which I just found out). Perhaps a short-year return would be in order in this case.

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        #4
        Not 100% sure but I think I will have to agree with Bill. Because the new owner bought the actual shares of the C -corp I think that no short year return is to be filed. Remember that the C-Corp is a "living Entitiy" meaning it doesn't die just because someone else owns the stock.

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          #5
          or does it

          Sea Tax,
          Or does it indeed die if it is re-organized into another corporation via an immediate asset sale on the next day. This is an unusual case for me where a Fortune 500 company bought a small C Corp. My client was the small C Corp. The Corporate Tax Dept. of the buyer is asking me to prepare a short-year return. I assume they know what they are doing but I just am probbing around to be sure.

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            #6
            "Will be" isn't good enough

            >>what if the buyer is a Corp. who will be re-organizing all the assets<<

            "Will be" isn't good enough. Even if they have already moved all the assets, that's still not enough. Until they dissolve the corporation under state law, filing a short year return would be a change in accounting method. That doesn't mean you shouldn't do it. There are many valid reasons why a big corporation would want to pay the Form 3115 user fee and go ahead with this.

            Healthy fee for yourself too, I should think.

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              #7
              John Of pA I am by no means the know it all C-corp expert. But my attitude is that once your client sold his shares to the c-corp it is no longer his problem. If what he infact sold was the shares of stock then he no longer has the right nor power to file any return.

              Now if it was a S-corp then I can see how the seperation from when your client owned it until the next owner took over might be of importance. But I don't thinkt hat applies here.

              John I would ask these hot shot big guys to give some further explaination. I will tell you this, don't just given in because you think they might know more. I have dealt with these big 4 CPA's on a couple of occasions and let me tell you that the way they do accounting is not always the right way. Specially when it come to taxes they usualy are wrong.

              Basically from my understanding of C-Corp and mind you I know very little of corporate re-structuring , that when the shares are sold it is the new shareholders problem. If the new shareholder sold the assests after they bought the corp why would the old corp shareholder have to report anything.

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                #8
                Return

                Maybe, they just want a return as their starting point, just needing the P&L and Balance Sheet for the time during which they have no bookkeeping information. Maybe, it's not going to be filed but consolidated with their own return.... If the new owner is your client for this project, ask them and charge them for what you decide to do for them. If the old owner is your client, ask him some questions.

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                  #9
                  deal with this in time

                  Sea-tax, you are exactly right from the old client's point of view. But now the new owners are asking John to stay on the job for one more return. That's just as it should be. Although they have their own accountant, they feel that John is the most qualified because he is already familiar with the depreciation schedule and so on. Since they are changing the accounting year, they have a new filing deadline and might not want or be able to deal with this in time.

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                    #10
                    Thanks

                    Thanks for these insights. The 3115 requirement is an interesting option I never thought of, thanks Janien. As for my fee, when I was first ask to do the return, I quoted, what I thought was a ridiculas large fee, becasue I did not have time to do it. Theyre response was "great, when can we get started". I then realized I was dealing with a Large Corp mentatlity that I was not used to. As it turns out, it was more work than I throught so I'am glad I quoted high. The nature of what they are doing is highly confidental, as the product rights they are buying, when marketed and bundled with other product rights they have, according to their plan, will probably destroy thier competitors similar line (as I hear unofficaily from someone in the industry).. So they cannot say, or answer my questions about what there doing with the company. As I understand, subsequent events are immaterial on an 1120, and everything is reported only as of the date of the return.

                    Comment


                      #11
                      Sec. 338 Liquidation

                      John, you need to find out if the parent corp is doing a "straight" liquidation, under Code §332 (in which case basis carries over), or wants to make a Code §338 election. In the latter case basis will be stepped up, but gain will be recognized by the liquidated corporation. Based on what the new owners are asking you to do, it sounds to me like this is their intent.

                      If that is true, the taxable year of the acquired corporation ends as of the close of the acquisition date, and gain is recognized as if it had sold all its assets on that date at their FMVs. The final return will be due by the 15th day of the third full month thereafter.

                      Be sure to read Code §338 and related Regs, especially Regs §1.338-10. You may also find the instructions for F-8023 helpful as well.
                      Roland Slugg
                      "I do what I can."

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