I have a client that purchased a company (S Corporation) on September 30, 2003 for $15,000. It was basically purchased on a hand shake. The new owner took over the company and continues business. The previous owner on his way back from FL has a heart attack and dies. The son of the deceased is in charge of the estate. He just wants to get everything finalized for tax purposes, etc. The assets of the company consist of cash $5,000 and a Shareholder loan receivable $150000. The liabilities are $100,000 in credit card debt. I have now been engaged to prepare the 2003 return. The company is not going to receive the money from the previous shareholder and it doesn't look like the company is going to have to pay the debts back. The credit card companies were sent a death certificate and have not persued payment since. How should the sale be reported? Would it be easier to report it as an assets sale? Does it matter that the company never changed EINs, etc.?
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I can't follow your story. There are too many holes unanswered. Why would someone buy a company for $15,000 from someone who owes the company $150,000? Why would someone buy a company that owes $100,000 in credit card debt?
Was this guy crazy, or just plain stupid? -
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Did your company buy the stock or just the assets of the company?Comment
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It was either a stock sale or an asset sale, and I don't see how you have a choice in which way to report it. It sounds like it was a quicky stock sale, and all you have to do is determine basis & report gain or loss accordingly.Comment
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He just agreed to take over the company and agreed to give him $15,000 for doing so. We can probably structure the transaction however we wish. I'm not sure the son cares one way or another. I would think it would be easier to buy assets but I'm not sure that is an option being they never changed the name and EIN. Its safe to say... the purchaser REALLY didnt know what he was buying. So to answer your question.. he was probably crazy AND stupid. Now I have to clean all this mess up.Originally posted by Bees Knees
Thanks in advance!Comment
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Sorry if I sounded snippy, but this is crazy. A guy comes to you and says, if you give me $15,000 and assume my $100,000 credit card debt, then I promise to pay you back $150,000...someday if I don't drop dead of a heart attack.....Originally posted by Unregistered
Did you check to make sure the guy actually dropped dead of a heart attack?Comment
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I didn't take it sas being snippy at all... YOUR RIGHT! Its actually worse than that. He had NO idea what he was buying. It wasn't until he looked at the last return that he realized there were shareholder loans and credit card debt. Any further thoughts?Originally posted by Bees KneesComment
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See if you can get rid of the credit cards. Are they really in the business name? Did the former owner co-sign? Make the decedent’s estate either come up with the $150,000 shareholder receivables or pay the credit card debt.
I assume your client paid $15,000 for the value of the business operations without knowing anything about the credit card debt and shareholder receivables. Your client needs legal advice. I’m not sure I would want to get involved in something like this. Lawsuits could start to fly any minute.Comment
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I am still waiting to hear if the debt was indeed in the company name. When they first started getting bills they called the company and then sent them a copy of the death certificate. They have not heard anything since (3 years). This leads me to believe that they were not truely in the company's name. Regarding the $150,000. I do not think the son is going to pay anything. I guess, if that is true then the purchaser simply paid more for the company. I am inclined to remove the liabilites, shareholder receivable and offset the difference to equity.... or maybe leave a receivable from the new SH.
Any thoughts?Comment
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I agree. Take off the credit card debt and shareholder receivables and plug the difference into equity. You have a hand shake transaction that did not include those two things. Let a lawyer deal with those issues if someone wants to make a big deal over it.Comment
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Thanks Bees Knees!Comment
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