Shareholder buyout. Hope someone can help.

[Safire]

Single member LLC, being taxed as an S Corp, will be selling company to 2 individuals. The new individuals want to continue with the name, federal ID number, customer base, employees and reputation of the company.

Would this be a sale of 100% of the stock, which really doesn't exist because the company is a LLC and had never issued stock.

Or would this be a sale of membership interest in LLC?

From what I understand about the way they want to do this, I will still prepare only one tax return for the year with a K-1 issued to original owner from Jan 1 up until date of sale and then K-1's issued to the new owners as of date of sale until end of year.

Do I need to notify IRS of change in shareholders prior to filing tax return?

I know this one is over my head, but I'm a fast learner if someone is willing to help me out.

Thanks in advance.

[Safire]

I guess not, thanks anyway.

[rosieea]

Safire - it is my understanding that an LLC electing to be taxed as an S Corporation must follow all the rules relating to S Corps. That being the case, proceed as you have planned - issue a final K-1 to former owner, and K-1s to the new owners, based on number of days of shareholder status. The selling shareholder recognizes gain or loss on the sale of his "shares" as determined by his basis. The S Corp continues business as usual, and I know of no requirement to notify the IRS of any change, other than by attaching copies of the K-1s to the 1120S.

[Matt Sova]

Sale

You hit it on the head. This is a membership interest sale and the gain or loss is determined by the basis the original member has in the LLC (reported on his personal return), quite possibly the equity on the books.

The original member will report 100% of the net income and other items on his K-1 up to the date of the sale and the 2 new members will report their share from the date of the sale until the end of the year.

No need to notify the IRS of the change in shareholders for the year.

[Safire]

Thanks so much rosieea and Matt. Your help is greatly appreciated.