1120s sale

[TAX4US]

TP and spouse own 100% of S corp. Operated for 10 months then Sold all assets including name to a new person. I have sold all the assets on form 4797. My question is what do I do with the goodwill. It was listed in the contract. Do I show that on the Schedule D of the 1120-s or somewhere else. Also isn't basis of the stock adjusted right before the sale takes place. There was also a small piece of real estate owned by the Corp that the TP and spouse kept. Should this be transferred to tp at FMV and reduce the basis in the stock. Help greatly appreciated.

[DaveinTexas]

Ice Cream anyone?

I would report the "asset" sale as you have, Form 4797 with no depreciation allowed (less than one year). As for the Goodwill, read this article regarding how to treat the sale of Goodwill: https://www.thetaxadviser.com/issues...e-may2014.html

Also, review the Martin Ice Cream case. It all comes down to an employer contract, assigning Goodwill to the company, non-compete agreements with the company, etc. Honestly, I have NEVER had a client create an employer contract between him/herself and their company. As such, I have treated Goodwill as owned by the individual. And, in your client's case, I doubt any Goodwill was created without the relationship the "humans" created with their clients in such a short time frame (10 months).

As for the real estate, I would ask the client what their intention is with the property. Will they rent it/fix it and flip it or do they need the cash? Distributing the property to themselves will produce a taxable sale which will increase their stock basis but also will force potentially more short term gains to their 1040s, unless the FMV hasn't risen a great amount.

If the FMV has risen tremendously, consider keeping it in the S Corp IF they intend on selling it within the next few years. Eventually, they will sell the property and it will qualify for long-term gains (some 1250 gain too if rental property) and the tax results would be the same as if they held it personally. Keep in mind though, if one shareholder passes away, this may not be a good strategy because the beneficiaries will receive no step-up for the real estate while it remains in the Corp upon death.

If the FMV hasn't increased a great amount, and they can afford the tax hit, maybe wait until they qualify for long term gains to distribute it (sell it) to the shareholders. Then, maybe advise them to put the real estate in an LLC (Disregarded Entity or Partnership) until they decide what they want to do with it.