I have a client (Jane) who is a 50% owner of an SCorp. The other 50% owner (Sam) retired and Jane is buying Sam's share of the corp. Is there anything to report on the 1120S for this sale? Since one owner is paying another owner, it seems to be a personal expense, which would impact basis but not income/expenses. The number of shares in the corp has not changed. Do I report an increase in basis each year based on the amount of payments made (the buyout is happening over a period of 5 years)?
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Did she buy all 50% now and is paying over 5 years or is she buying 10% of outstanding shares each year?"Taxation is the price we pay for failing to build a civilized society." ~ Mark Skousen -
She purchased all the shares from Sam and became a 100% shareholder but is making annual payments, per the agreement.Comment
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The amount she paid is irrelevant for the books of the entity. She absorbs the capital balance of the other partner, and the entity is no longer a partnership but a Proprietorship, or SMLLC at best.
Her basis is greatly affected by the amount she pays the other partner, and the increase in basis occurs for the year of purchase ONLY, unless there is a default.
The partnership has a section where changes in ownership are reported on the capital balance calculation. The partnership should be closed out - this should be the final return 1065.Comment
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Snaggle, I believe this is an S Corp, not a partnership.
So other than Snag's partnership comments, he's right. This is irrelevant to the corp and her basis increases the year she purchased. If not a partnership, the S-Corp continues, she does not become a sole proprietor.
"Taxation is the price we pay for failing to build a civilized society." ~ Mark SkousenComment
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Snaggle..... This is an SCorp.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
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