C Corp stock basis and sale

[BHoffman]

Is this just too easy?  I have never actually presided over a 100% C Corp stock sale.  The seller is my client.

Tax returns and financial statements show:

Common Stock:       $10,000

Paid in Capital:         $5,000

So, is his stock basis $15,000 and that's it?  If the selling price is $100k then his LTCG will be (without considering 1244, installment agreement, etc) $85k?

Thanks.  I've just returned from an emergency trip back east due to a sudden death in the family that really rattled everyone.  I'm home now.

 

[OldJack]

Did he actually sell stock to an individual or company or did he sell assets?  $15,000 appears to be his inside tax basis but his personal outside basis is what counts.  As an example he could have bought the stock from someone else that had the $15,000 basis and paid $85,000 for the stock which would be his 1040 basis.  There could be a loan to the corp from him that would increase basis.  You have to find out more from him.

[BHoffman]

Hi Jack -

It's a stock sale to an individual.  Not an asset sale.

He started the company from scratch and did not buy it from anyone else.

He did not contribute any fixed assets to the corporation.

There are no loans between him and the corporation.

Thanks for your response.  I'm pretty sure this is as straightforward as it seems for this tiny and uncomplicated company.  I will double check for outside items that will increase or decrease that $15,000 basis.  He was talking about an installment agreement with the buyer (I know how to handle that), and I'll want to check Sec 1202 and do some other things.  Just needed a small push in the right direction. 

[Gail in Virginia]

I understand why you are questioning this - it is almost NEVER this straightforward. 

[Max W]

Straightforward!  Just love it when a client says "I have a straightforward tax return, just two W-2's".  OK!

"Oh, and BTW, I sold some rental property and the bank sent me something, I think says 1099C".  Yep!

Straightforward.

[BHoffman]

[BHoffman]

Well, of course, this raises it's ugly head.  I told the seller (my client) to hire an attorney to set up the sale contract.  I told him that selling the assets would result in higher taxes, and that he should sell the stock.  Based on below, it looks like he is depending on the buyer's attorney and failed to get his own, and looks like he's selling the assets.

I get this email :  "Buyer's attorney wants our assets and debts to move forward on selling the C-Corp.  We took inventory and can look up what is in the banks, value of the vehicles etc.  What else do we need to do?"

I do not know how to respond, and am still too fuzzy to think.  How would you respond to this question?

[NECPA in NEBRASKA]

Tell him that you will answer him after today. Then get back to him when you are able.

[Edsel]

Tell him to raise the selling price enough to cover the double taxation if buyer wants to purchase only the assets.  Simple as that.

[DANRVAN]

Your role is to advise him on the tax consequences of the proposed transaction.  Sounds like things might start moving fast and you should as well.

[BHoffman]

There doesn't seem to be a contract yet, and they are still negotiating the price and terms.  I advised him that it would work out better tax wise if he sold the stock instead of the assets and explained the difference.