I have never dealt with anything like this before and hope someone can point me in the right direction.
A client of mine owns 97.4% of a C Corporation which sells oils, lubricants, etc. The Corporation is selling it's assets, inventory, A/R etc. In addition, the purchaser will pay the seller for retained gallons (which refers to customers they retain and the total gallons those customers purchase during 2009.)
The purchaser will pay the seller at closing for the assets, inventory and A/R so the seller can pay off all debts. If this amount is not sufficient, the purchaser has agreed to advance the seller enough money against future payments for retained gallons to cover all debt. The remaining part of the purchase price will be paid over the next four quarters and will be based on historical sales to these customers. After 390 days they will "true" up the payments based on actual sales and either the seller will owe them money or they will owe the seller money.
In order to allow the corporation to liquidate by 12-31-08, the attorney will set up a liquidating trust and the shareholders will assign their shares to the trust. The trust will then transfer the shares back to the corporation in exchange for the right to receive the post-closing payments. By doing this, the corporation can dissolve before the end of 2008 since it will have neither shareholders nor assets. In addition, all of the rights to receive the post-closing payments will then be assigned to the two shareholders in proportion to the shares they currently own in the selling corporation.The trust will then have the right to receive the four quarterly payments and the final "true up" amount. In addition any A/R that are rejected by the purchaser will be distributed to the trust and attempts made to collect them.
My questions are:
1. Do I report the assignment of post-closing payments on the corporation's final tax return? If yes, how do I assign a value since that will not be determined until the end of 2009?
2. What about the shareholder's basis and paid in capital in the corporation?
3. Is the assignment of their shares to the trust considered a sale of their stock to the trust? If yes since proceeds cannot be determined until the end of 2009, how and when do I report this sale of stock?
4. Is there anything else I need to be concerned about?
A client of mine owns 97.4% of a C Corporation which sells oils, lubricants, etc. The Corporation is selling it's assets, inventory, A/R etc. In addition, the purchaser will pay the seller for retained gallons (which refers to customers they retain and the total gallons those customers purchase during 2009.)
The purchaser will pay the seller at closing for the assets, inventory and A/R so the seller can pay off all debts. If this amount is not sufficient, the purchaser has agreed to advance the seller enough money against future payments for retained gallons to cover all debt. The remaining part of the purchase price will be paid over the next four quarters and will be based on historical sales to these customers. After 390 days they will "true" up the payments based on actual sales and either the seller will owe them money or they will owe the seller money.
In order to allow the corporation to liquidate by 12-31-08, the attorney will set up a liquidating trust and the shareholders will assign their shares to the trust. The trust will then transfer the shares back to the corporation in exchange for the right to receive the post-closing payments. By doing this, the corporation can dissolve before the end of 2008 since it will have neither shareholders nor assets. In addition, all of the rights to receive the post-closing payments will then be assigned to the two shareholders in proportion to the shares they currently own in the selling corporation.The trust will then have the right to receive the four quarterly payments and the final "true up" amount. In addition any A/R that are rejected by the purchaser will be distributed to the trust and attempts made to collect them.
My questions are:
1. Do I report the assignment of post-closing payments on the corporation's final tax return? If yes, how do I assign a value since that will not be determined until the end of 2009?
2. What about the shareholder's basis and paid in capital in the corporation?
3. Is the assignment of their shares to the trust considered a sale of their stock to the trust? If yes since proceeds cannot be determined until the end of 2009, how and when do I report this sale of stock?
4. Is there anything else I need to be concerned about?
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