TAXMAN Posted June 9, 2016 Report Share Posted June 9, 2016 I need a possible what do you think answer. H&W own 100% of S corp. A person approached them to possibly buying the business lock stock and barrel only retaining the name for continuance of the type of business. Thought 1: Corp sells every thing to person that want to buy getting all cash, then liquidating stock of H&W. Thought 2: Have person that wants to buy, buy the H&W's stock for same $ that they would be paying in thought 1. It appears that Thought 1 creates sales of all assets with recaptures of dep and capital gains out the ying yang. It appears that thought 2 would be just a sale of the stock. Still will have CG out the ying yang. I am only seeing the sellers side since the buyers side has their own tax people. What would be your advice if you are seeing only the seller side. BTY H&W are in their mid 70's and just want to get out? Not that this has any bearing. They just want to keep things as simple as possible. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted June 9, 2016 Report Share Posted June 9, 2016 The seller always want to sell just the stock but the buyer wants to buy the equipment and goodwill so that they can get the depreciation/amortization. Also, buyer doesn't want the 'skeletons in the closet' of the old corporation, which is why we almost never see the sale of an entity. 6 Quote Link to comment Share on other sites More sharing options...
Randall Posted June 10, 2016 Report Share Posted June 10, 2016 Yes, the buyer will probably just want to buy the assets so the seller will probably not have a choice. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted June 10, 2016 Report Share Posted June 10, 2016 The struggle then becomes the allocation of the sales price, because they buyer wants more allocated to equipment so he can 179 it or depreciate it over a few years instead of 15 years for goodwill, but the seller wants less allocated to equipment and more to goodwill because goodwill sale is capital gains and equipment is probably mostly ordinary income. Both buyer and seller must attach form 8594 to their returns with the agreed upon allocation. 4 Quote Link to comment Share on other sites More sharing options...
schirallicpa Posted June 10, 2016 Report Share Posted June 10, 2016 I just had a client ask me the same question, and I want them to buy the assets, not the stock for the same reasons listed here. I had a business buy stock one time, and in that case there were very few assets, but the name of the business was what they were buying. I did not advise in that situation, so never entirely convinced that the buyer did the right thing. Most of the time, buyer wants assets, not stock. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 10, 2016 Report Share Posted June 10, 2016 47 minutes ago, Abby Normal said: The struggle then becomes the allocation of the sales price, because they buyer wants more allocated to equipment so he can 179 it or depreciate it over a few years instead of 15 years for goodwill, but the seller wants less allocated to equipment and more to goodwill because goodwill sale is capital gains and equipment is probably mostly ordinary income. Both buyer and seller must attach form 8594 to their returns with the agreed upon allocation. Absolutely drum in to client that they MUST insist that the Form 8594 be part of the deal. And strongly suggest that for any significant equipment they get a reputable appraisal in writing. But help them understand that the 8594 is how they establish that the price they agree on is the result of an arms-length transaction between buyer and seller, and thus, a "fair market price". 4 Quote Link to comment Share on other sites More sharing options...
Max W Posted June 11, 2016 Report Share Posted June 11, 2016 It is not a given that it is best for the buyer to acquire assets. There are some things that work in buying stock. For instance, large NOL's, large business credits and the buyer can use Sec 338 to treat the assets as if they were purchased separately. Also, if the assets are encumbered, or are being leased, such assets under asset purchase would have to be negotiated with each lender/lessor individually. There are so many variables in a buy/sell arrangement that each option has to be looked at carefully. 5 Quote Link to comment Share on other sites More sharing options...
SaraEA Posted June 12, 2016 Report Share Posted June 12, 2016 Do these same considerations apply when gifting interests in an S corp? Parents jointly own the S corp, want to gift it to daughter. Best to gift the stock or the assets? Corp is a very successful business and has at least $500k assets that are still being depreciated. (Probably some that are fully depreciated too.) Please help me think this through. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted June 13, 2016 Report Share Posted June 13, 2016 As Max stated above you have to weigh all the variables. For one thing, the parents cannot directly gift the assets since they are owned by a separate entity, they would first have to be transferred to the parents. On the other hand, the gifting of stock can be done over time and allow the parents to gradually shift control with the least amount of interruption to the operation of the business. Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted June 13, 2016 Report Share Posted June 13, 2016 Also consider if stock is purchased you can state on your letterhead . . . in business since xxxx. Quote Link to comment Share on other sites More sharing options...
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