Shareholder Leaves S-Corp

[geekgirldany]

S-Corp had two shareholders. Son and father. 50/50 split. Father decides that he doesn't want anything to do with the s-corp in 2005. (I am doing 2 years of returns for this business). I know a shareholder just can't leave without something being documented in the corporation. Can it be recorded that the father gifted his half of the corporation to the son? The corp did close down in 2005. I want to make sure I am not missing something here with the father just leaving the corporation.

Side note I appreciate everyones help on my posts.

[sea-tax]

S-Corp had two shareholders. Son and father. 50/50 split. Father decides that he doesn't want anything to do with the s-corp in 2005. (I am doing 2 years of returns for this business). I know a shareholder just can't leave without something being documented in the corporation. Can it be recorded that the father gifted his half of the corporation to the son? The corp did close down in 2005. I want to make sure I am not missing something here with the father just leaving the corporation.

Side note I appreciate everyones help on my posts.

Well since nobody else chimed in I guess I will.

Personally I don't think it was a gift unless that was the fathers intention. It sounds to me as if he abandoned the stock and company. I think there should be some mention of the abandonment in the corp minutes and probably a statement from dad saying he relinquishes all rights to the stock.
This I am not sure of but maybe the father has capital loss issues to contend with if he still has basis in the stock which he abandoned.
Hopefully others will post some responses , good luck.

[Corduroy Frog]

Can't just "leave"

Father can't just "leave." Sea-Tax is on the right track.

A corporate resolution must address any change in stock. Father can "gift" his shares to his son, but in absence of any intent, the corporation can "recall" his stock to accommodate his wishes, such that his shares are no longer outstanding. I didn't see anything about a gift in Geek's post -- in fact nothing except Dad just simply didn't want anything to do with the corporation anymore.

It's overwhelmingly likely there is an affect of Dad's tax return as a result of this. Gain/Loss on disposition, K-1s, etc. It may be that these effects are benign, or
maybe not. He can't just walk away.

[ChEAr$]

Dad the shareholder

may "walk away" only after his stock certificate has been turned into the secretary for cancellation, either by action of the corporation redeeming the stock (must be resolved by
board of directors) or by sale/transfer to another shareholder, in this case the son.

I'll bet this wasn't done in 2005. This of course means father is still shareholder until
the corporate demise.

[geekgirldany]

Yeah I ask about gifting the shares to the son.

I didn't think he could just leave. From the looks of previous tax returns he doesn't appear to have any basis in the stock. I questioned the customer when they first came by and he told me to just "work it out" and "whatever you need to do" so his dad isn't on the corporation for 2005. They haven't done minutes/records of meetings. I am pretty sure they haven't. But I will ask. From my understanding a hurricane hit and their business went down from there. It closed up at the beginning of 2005.... but the son continued to pay personal bills out of the corp account instead of taking the money out. Son is filing bankruptcy so is wanting all tax returns completed asap.

I'll see what I can dig up on further research. Thank you all for answering. Gives me a good direction to head into.