TaxSrv wrote:
- quote -

May depend on where you are.

Where I am the phrase "$1 and other valuable consideration"
means that you're plain and simple not disclosing the
purchase price in the contract (that phrase is in the deed
for our house, and you can bet on that we paid more than $1
for is, and in money, not in labor).

Aloha,

Maren

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<brianrookard[at]hotmail.com> wrote:

- quote -

You sensed that one right! This will be a bargain sale,
subjecting the EE to ordinary income with tax owing to come
out of his own pocket. It will be based upon a valuation of
the company which costs a big fee. So, Plan B.

An employee stock ownership plan is a possibility. But that
requires annual valuation of the stock by the ESOP trustee,
and it's really hard to value a corp like this. These
valuations carry a very high risk of malpractice litigation
by unhappy plan participants. Where this guy is doing
almost all the work as you said, it seem hazardous to me.
If he were to become disabled, the valuation of what's in
his ESOP substantially goes away.

Plan C is seeing a tax expert in employee benefit plans. A
profit-sharing arrangement seems a fit here, but actual
money should be placed into the plan by the employer.

Fred F.

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I am a law clerk at a law firm. A client of our law firm is
looking to sell some of his S Corp stock to an employee (who
does most of the work) for all of $1 and "other valuable
consideration" (meaning that they're considering his prior
service as part of the payment). I'm helping to prepare
some of the paperwork. I'll admit that this is a little
daunting, and frankly, this is not our area of expertise and
I think the attorney should refer the client to a true tax /
business pro. Nevertheless, in order to inform the attorney
and client I need to know some of the biggest pitfalls to be
aware of from the tax standpoint, and maybe some good
solutions to offer or recommend.

Thanks in advance.

Brian

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >