S-Corp, Asset Distribution

[geekgirldany]

Two shareholders in on S-Corp. Shareholder B wants to leave.

Sh. B and Sh. A made the agreement that A would assume responsibility of the back payroll taxes in return Sh. B would take the S-Corp trucks and assume their liability. Sh. B stock certificate was then signed over to Sh.A. Handshake deal.

Okay now to the tax consequences. B took over the trucks that where in the S-Corps name but B is liable for them if S-Corp could not pay. They have not been retitled My question is concerning these getting out of the S-Corp.

I want to double check....
This is a deemed sale to Sh. B and considered a distribution. The sale would be reported at FMV (assets Sec 179 prior years) through the S-Corp and BOTH shareholders would have to report any gain.... is this correct?

[BHoffman]

Hi Dany - don't forget that the shareholders have to take distributions in accordance with their ownership percentages.

[geekgirldany]

They were 50/50 in the S-Corp. Looks like I will have to do some digging on this as liabilities assumed by the shareholder from the corp come into play also in regards to FMV. It is whichever is higher.

Add on to that... the S-Corp continued to pay the truck payments for a few months after stock certificate was signed over.

Just wish people would think what the tax consequences might be before they make such decisions.

[JON]

Whatever corp assets B got were at

FMV. The resulting gain goes through the S corp, if a loss it is not deductable. Assets go out of the Corp at FMV. You cannot deduct a related party loss.