Phoebe Roberts, EA wrote:
- quote -

OK, thanks. I have met with 2 pros and getting information
in one sitting without asking direct questions has been
difficult.

So my leftover (unused) basis will be treated as a capital
loss and I should try to negotiate an agreement with the
buyer to allocate some of the purchase price for the fixed
assets to Goodwill. (The non-compete is ordinary income
when an S-Corp is sold.)

Could you just tell me if the Capital Loss from unused basis
will be subject to the meager $3,000 annual limit or is
there is special provision in this case?

Thanks for your help, Phoebe!

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

ToddH wrote:

- quote -

OK, so you have zero stock basis, and a $300,000 loan with a
basis of $90,000.

- quote -

Grossly oversimplifying, you now have $50,000 of basis. In
practice, you've may have some income (gain on repayment of
loan), because the flow-through income isn't going to
completely restore your debt basis.

- quote -

Now you have $200,000 of basis.

- quote -

Now you have $20,000 of taxable income, and $220,000 of
basis.

- quote -

My guess is you actually will have $220,000 of net assets,
since you've got $220,000 of equity / basis. But close
enough. You've got more or less $170,000 of taxable income,
and $200,000 of cash with which to pay the tax. Capital
loss to the extent that you get less cash than you have
basis.

- quote -

It'll save you the tax on the $20,000 of depreciation
recapture.

Honestly, though, no one can tell you what you're going to
get from information passed piecework through Usenet. As I
said before: Whoever's been doing the S-corp return should
be able to calculate the tax consequences to you pretty
quickly, assuming it's been competently done and you've
provided accurate and complete information all along.

You might have some planning opportunities regarding the
non-compete and goodwill. It's penny wise and pound foolish
not to have a good local advisor working with you on this.

Phoebe

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

My $90,000 in basis in 12/31/05 includes cumulative loans to
the corp, net income, losses, withdrawals etc from prior
years so the Notes Payable to shareholders can't be added in
again. I am trying to figure out if the deal can be
structured differently to lower my tax burden.

I may be able to negotiate a stock sale. If I do this, will
it help me or wil it not matter?

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

thutchinson[at]charter.net wrote:

- quote -

In theory, it all comes out in the end. In practice, I had
a client in a similar situation end up with $300k of
ordinary income and $300k of long-term capital loss.

- quote -

So you've got $390,000 of basis at 12/31/05. (You use stock
basis first, and restore debt basis first, so since stock
basis is greater than zero, you have basis in all of your
debt.)

- quote -

Now you have $350,000 of basis.

- quote -

Now you have $500,000 of basis.

- quote -

Now you have $20,000 of taxable income, and $520,000 of
basis.

- quote -

After paying debt, you have $200,000 in cash (a debit),
$300,000 of shareholder loan payable (a credit), and
$220,000 of stock + retained earnings (a credit). You're
out of balance, so there's something you haven't told us.

- quote -

They won't buy your stock.

- quote -

Whoever's been doing the S-corp return should be able to
calculate the tax consequences to you pretty quickly,
assuming it's been competently done and you've provided
accurate and complete information all along.

Phoebe

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

A C Corp wants to buy my small SCorp but they want to me to
liquidate and retain the net current assets for my benefit.
They will pay appraised value for the equipment. They will
not buy the stock. I am worried about losing the tax
benefit of my stock basis (as a return of capital) unless
the stock is sold. Here are the relevant facts in round
numbers:

Stock basis at 12/31/05 --$90,000
Withdrawals/repayment of principal on shareholder note in
2006---$40,000
Net Income taxable to me as S/H through liquidation date
(estimated)--$150,000
Current Assets less current liabilities on liquidation date
--$200,000

Cash payment for FMV of furniture and fixtures--$50,000 (Tax
Book value of $30,000)

I may be able to negotiate compensation for Goodwill for
client list and contacts. I will be forced to sign a
non-compete. Current balance the SCorp owes on Notes to
Shareholder (me)--$300,000.

Questions: Given these numbers, is my stock basis on sale
date correct as calculated below:
$90,000 - 40,000 + 150,000 - 200,000 = $0

If I liquidate the net assets and retain them prior to the
"sale", will this count as a distribution that will reduce
my basis?

Does the asset sale that they are demanding put me at a
disadvantage from a tax standpoint or should I try to sell
for stock?

I haven't been able to find consistent professional advice
on this so I would surely appreciate any help that anyone
can offer!

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >