Sale of Stock/Business

[geekgirldany]

Customer sold business, S-Corporation. The sale was setup as a stock sale. The new owners/stockholders are paying for it on a installment sale.

I was reading in TTB about the 28% gain. It says this applies to the taxable part of a gain from the sale of qualified sale business stock. Later it talks about the Gain on Section 1202 stock and to look at Tab 18. I just want to make sure that this sale is NOT subject to the 28% tax because to my understanding Section 1202 stock is for C-Corporations only.

Just want to make sure like I said. These last weeks I get a little stressed.

Thank you

[Bees Knees]

TTB, page 18-8, "For purposes of Sections 1045 and 1202, small business stock means C corporation stock that meets the following tests...."

So not to worry...S corporation stock cannot be Section 1202 stock.

[geekgirldany]

Thank you so much!

[JoshinNC]

I have a similar situation this year

One of my clients sold one of his S-Corps in February of this year. He structured this as a stock sale on an installment method. He will receive $2500 a month for 36 months and has a basis of $150,000. Does he take the full capital loss in 2006 or will we have to take a portion of the capital loss each year?

Haven't done any installment sales before, so any assistance would be appreciated.

[Chief]

Installment Sale

Josh:

Off the top of my head I would say all the depreciation is reclaimed the year of sale. Then the principal and interest payments are included for the year they are paid. Follow the directions for Form 6252 and you should do ok. Good luck.

[BOB W]

Stock Sale

This is a stock sale, no recaputure of any depreciation. the Buyers assume the Corporation "AS IS". I don't believe Installment Sale Reporting is mandatory, especially since there is a loss. I would claim the loss in full and report the interest as income as rec'd, per amortization schedule....................

[geekgirldany]

I think you can elect to forgo doing a 6251 Installment and recognize the gain or loss in the year of sale. Look at page 6-14 in TTB. Electing out of an Installment Sale.

I notice that in the discussion of the installment sale it assumes you will have a gain. I dont' think I read the word loss in there. Just an observation.

[BOB W]

Josh...........

....... had a simular situation......>"One of my clients sold one of his S-Corps in February of this year. He structured this as a stock sale on an installment method. He will receive $2500 a month for 36 months and has a basis of $150,000. Does he take the full capital loss in 2006 or will we have to take a portion of the capital loss each year?"

[JoshinNC]

the problem is there is no interest

the seller and buyer agreed at a purchase price and divided it evenly over 36 months. they did not factor any interest into the equation. seller basically wanted out of a losing proposition, and buyer was willing to take risk on purchase. no interest, so no interest income, right? just take the full capital loss in 2006?

thanks to all for your help!

[BOB W]

Well,

Uncle Sam has a different posistion on that thinking. It is called imputed interest. The sale price is REQUIRED to be reduced to account for the cost of money over time.

[geekgirldany]

in my case there actually was imputed interest listed in the contract. Stock sold for $400,000 with 3.75% interest. Problem is the $400,000 includes the interest. So I am goign to have to figure that out.

[JoshinNC]

one more headache!

at least I can wait until after 4/17 to start reading up on this.

thanks Bob!

[Safire]

Reading with interest, as I have one of these possibly going down by the end of the month.

Problem is, my client and his possible buyer seem to want an hybrid type of sale. They want the company to continue, him out and them in, but he wants to keep Cash on Hand, AP and AR as of date of sale. They want to work out a price that really only includes, equipment and goodwill type items.