C corp sell all business assets - Corp self finances

[JAinNC]

C corp (since 1985) sold seafood processing assets land, building, personal property business assets. No A/R or name of business sold. C corp is still collecting A/R and will pay some wages to president. 100,000 rec'd down and remaining 20 yr to pay balance of 800,000 plus interest. C corp will remain in existence with installment sale.

Since this is a C corp I THINK I don't have to split out ordinary gain from capital gain for schedule D. Prior to sale in early January, I advised clients to make sure each asset's sale price was listed and seller and buyer should agree. They were going to depend on the buyer's attorney and not get their own attorney, but did retain their attorney.
The attorney advised them to delete their list of assets from the paper work. (Except the land amount is stated)

The deal is done. My questions are: (1) Should I treat the sale as a bulk sale and not be concerned about ordinary or capital since it is a C corp?
(2) The Corp owes 90,000 +- to the shareholders, (every year I calculate interest that corp pays SH and is included in individual income). Should Corp pay that back to SH as soon as cash flow allows and reduce salary of officer for future years?
(3) What else am I missing as I advise clients?

Thanks,
Jeannie

[JON]

Problems

there is no installment sale provision for 1245 assets(I think). Buyer/seller have to/should do the sale form-both sent with their returns. The reason you do that is so both sides treat proceeds the same. Buyer always wants the max assigned to 1245(short life) and seller wants the max assigned to land/building(longer life). Your case of a C corp would mean tax treatment not a huge issue, but installment sale provision-is there one on the C and there can not be one for 1245 or ordinary income property (inventory).?? Bulk sale just provides for inventory, as I remember. Now that I have said this I do not remember having a C corp sell anything but goodwil??l

[JAinNC]

Any answers to my 2nd and 3rd questions?

Thanks Jon for reminding me the 1245 gain can't be included in the installment sale treatment. No problem there.

Any takers on questions 2 and 3?
Jeannie

[Bees Knees]

Even though a C corporation pays the same tax rate on capital verses ordinary income, you still have to split out the sale between the two. In other words, a sale of an asset goes on Form 4797 in a C corporation just like it goes on Form 4797 for an individual, with various parts of gain or loss flowing directly to the 1120 and/or Schedule D of Form 1120, depending on the character of gain or loss.

The reason is a capital gain or loss is still treated as such for all other rules. For example:

• As JON pointed out, you can't report ordinary gain under the installment method.
• Capital losses for a C corporation can only be applied against capital gains. Thus if there is a capital loss, you need to carry it back three years and apply it to capital gains. Any unused capital loss is then carried forward until the 5th year after the loss year, until used up. You want the corp to recognize capital gain in case this happens, and you can't use depreciation recapture to add to the capital gain.
• You also may have a capital loss three years from now that needs to be carried back to this year to be offset, so you need to calculate the proper capital gain verses ordinary gain this year for potential future events.
• C corporation have a special Section 291 calculation on line 26f of the Form 4797. You need to do the calculation if applicable when an asset is sold.

[JAinNC]

Thanks

There will be no capital loss in this case. Appreciate the info.