Capital Gain/Loss On Sale of C Corp

[Pacun]

A small business owner (bar and restaurant) incorporated his business as a "C" corporation. Shares of this entity were never publicly traded. Two years later he sold his shares to another. Does he recognize as the basis his net worth on the day of sale divided by the number of shares outstanding? Moreover, is such net worth calculated using the fair market value (or book value) of assets less liabilities? What form(s) are used?

[Maribeth]

A small business owner (bar and restaurant) incorporated his business as a "C" corporation. Shares of this entity were never publicly traded. Two years later he sold his shares to another. Does he recognize as the basis his net worth on the day of sale divided by the number of shares outstanding? Moreover, is such net worth calculated using the fair market value (or book value) of assets less liabilities? What form(s) are used?

His basis in his stock is what he gave to the corporation in exchange for his stock. Probably the net book assets of his sole proprietorship, less any liabilities, plus any tax paid upon the incorporation. There "should" have been on the original tax return for the corporation a statement listing the assets, liabilities transfered to the corporation from the shareholder and this statement would tie back to his basis. Add to this basis any additional paid-in capital that he contributed to the corporation over the two years that he owned it.

His gain or loss is recognized by comparing that basis with the consideration he received from the person who bought his stock. How much did this person give him in cash, property?

Maribeth

[Pacun]

Sale was an installment sale. Only cash is involved. At the end of the day, TP will have a loss.