S-Corp Asset Sale

[geekgirldany]

I tried to find my original post on here about this business. I made it in the Summer but just can't find it. LONG POST... would appreciate you reading it though.

Well I have a S-Corp that did an asset sale. After doing research which included posting on here I told them what needed to be done.
1. Get FMV on assets(equipment) at time of sale. Then breakdown sale price between goodwill and the equipment. Come in agreement with seller on this.

2. Pay off all debts the S-Corp owes.

3. Write check to sole shareholder for what is left.

4. Close Corporation.

5. Sole shareholder wanted son who had been working there to get a certain amount of the money from the sale. I told him that with his wife he could give up to $50,000 as gift. To pay the son and his wife $25,000 each. This would be a gift and not included in income for son/wife.

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Now what was done instead:
1. No agreement with seller on breakdown.

2. Debts were paid off of the S-Corp... check there.

3. Corporation is still opened.

4. Sole shareholder took money out in various amounts through the year. Son took out one lump sum of $80,000.

5. Money is still sitting there in the corporation.

I talked this over with my customer and responded with what I had told them. I had even put it in writing. I did not get a reason why it wasn't done how I told them. But the sole shareholder and wife did get sick soon after the sale.

The son called sole shareholder dad at the end of Jan 08 and said he wants the corporation to pay the taxes on the money he took out. I responded with "I've already done the W-2... this is not what we discussed originally."


For some reason the customer kept on saying "We left the money in the corporation to pay the taxes". I had already told them it would carry to their personal.

So now I am not sure what to do. My problems are:

- Corporation is still opened. Money is still sitting in it.

- Son taking money out and wanting corporation to pay the taxes. He possibly has loaned the corporation money but I can't get a firm answer on that.

- No breakdown on FMV of assets and goodwill

- Part of the sale was an installment sale. Buyer paid so much down and the rest is being paid to sole shareholder. Buyer is now behind 5 months.

I know this was a long post and I apologize for that. If any of you can shed some light on this I would really appreciate it. I suppose my biggest problem is the son taking that money out.

[Bees Knees]

If the corporation is still open, the corporation continues to file a tax return.

If they want to pay taxes out of funds left inside the corporation, let them. The distributions can be W-2 payroll. Or they can be distributions which must be in proportion to each shareholder’s ownership interest.

Just continue to follow the rules based upon what they do. If they ask why they have to continue to file a corporation return, tell them because they won’t listen to what you told them to do.

[Bees Knees]

BTW, as to not getting a break down of FMV of each asset sold, I have a file where a client’s return goes when there is missing information.

The client’s return stays in that file until I get the information I requested. I do not start preparing the return until I know I have all the information I need to complete it.

When they ask why the return is not done yet, the simple answer is you didn’t give me the information I requested.

[geekgirldany]

Thank you Bees for your help.

If the son has not loaned the company any money.. what do you suggest doing with the $80,000 he took out? 1099 him for it? Which won't go over well.

[Bees Knees]

If the son had been working there as an employee, the payment is a bonus for services rendered and needs to be run through payroll.

I'd suggest resigning from the engagement if they are not willing to follow the rules and pay you for all the extra work you have to do to straighten things out.

[geekgirldany]

Yeah I agree. They have been coming to me a long time. I really don't understand why they did not follow what I said.

If it needs to go through on his payroll then I will have to do a 941 for the quarter he took it out. Possibly a corrected one. Also have to do corrected W-2, 940, etc.