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Gifting a business


ILLMAS

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One of my associates has a corporate client with a restaurant, about 25-30 years ago they changed the ownership to a family member name due to some outstanding debt, fast forward to 2021, they want to apply for a video poker license but now the family member credit history and other past items prevent them from getting a license.   The ownership and management never change, it was always the original owner and the family member only loaned their name back then, now that they really want the gaming license they need to change back the ownership, would gifting the restaurant for X amount or the corporate stock be reported on the corporate level or individual?  Or what would be the proper way of transferring the business back without a major tax consequence?

Thanks

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Assuming a C corporation - 

If the company buys back the stock, then that would be reported by the individual like any other stock sale via schedule D/8949.  The corporation would have balance sheet entries for the cash outlay of the repurchase and a debit to Treasury Stock for those shares.

If the individual wishes to gift the stock to the other shareholder(s), there is no entry on the corporation books other than the transfer of ownership in the questions pertaining to ownership and the area of officer comp where percentage of ownership is shown.

The gift would require Form 709 reporting appropriate valuation of those shares.  If you aren't familiar with the valuation methods, consider subbing this out to someone that is.  If it is a closely held corp, depending on location, and if this is a minority interest, a discount for lack of marketability may be appropriate.  Like any other gift, the donee's basis will be that of the donor.  Assuming there is gift tax exemption available, there may be no tax consequence other than the costs of valuation, attorney fees, and preparing the appropriate returns. 

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Either should be recorded in the corporate minutes and the stock records for any changes of ownership, shares retired, redeemed, held in treasury, etc.  Lawyer will do this and will draw up papers for either one of the transactions. I'll assume that your state will require that documentation for proof of the change in ownership for any sort of licensing such as gaming or liquor licensing. 

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