Gail in Virginia Posted April 12, 2020 Report Share Posted April 12, 2020 Taxpayer owned minority interest in s Corp with multiple shareholders. New management had a personal problem with taxpayer and persuaded a majority of shareholders that taxpayer had to be forced out of ownership. Taxpayer sold half his stock to unrelated party and gave half his stock to a related party to comply with majority stockholders wishes. Taxpayer thought giving up stock for nothing would be a loss offsetting gain on shares sold. I don’t think it works that way. I have never had a shareholder forced out before. Is there any tax break available? Quote Link to comment Share on other sites More sharing options...
Edsel Posted April 13, 2020 Report Share Posted April 13, 2020 Hi Gail - it seems there are two separate transactions. I'll address the sale to unrelated party only. There is a code section for small business stocks that exempts or postpones the gain if the company qualifies. I dunno what it is, maybe 1222 or something like that. The smart folks on this board will jump in and tell us. I don't know what to make of the related party sale - but it sounds like it might not even be an arms-length transaction. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted April 13, 2020 Author Report Share Posted April 13, 2020 I don't think that the 1202 exclusion for small business stock would apply in this case because I don't think that is available for S-corps, only for C Corps. I was hoping something about the involuntary nature of the sale would offer some relief. But maybe I am wrong about 1202. Right now I could be wrong about almost anything. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 13, 2020 Report Share Posted April 13, 2020 Unless the corporation was a C corp at the time the stock was issued, and if it was always an S corp, that would rule out 1202. 1 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted April 13, 2020 Report Share Posted April 13, 2020 On 4/12/2020 at 7:19 AM, Gail in Virginia said: gave half his stock to a related party to comply with majority stockholders wishes. On 4/12/2020 at 7:19 AM, Gail in Virginia said: persuaded a majority of shareholders that taxpayer had to be forced out of ownership. Sound like there might have been involuntary conversion but I think you will need evidence that he was forced into the transaction. Was there a buy/sale agreement? Was a lawyer involved? 1 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted April 14, 2020 Author Report Share Posted April 14, 2020 I think he can substantiate involuntary conversion, but is there a tax advantage to that for stock as opposed to real estate and tangible personal property? Quote Link to comment Share on other sites More sharing options...
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