when sale transaction overlaps the year

[schirallicpa]

Client is selling business. Calender year.  We are into November next week.  He has an offer on the table.  He wants the sale to take place in 2014.  If he has a commitment/ contract in writing by dec 31, but money doesn't exchange until January, can we take this on his 2014 return.

 

I know when I was working in another firm, we did this.  I don't think that has changed.  Similar to buying an asset on credit at year end and taking the write off. 

 

Any thoughts on this out there?

[mcb39]

Is his accounting cash or accrual?

[Abby Normal]

I think if he has a signed note payable to him, you could ok. No experience with this scenario, just my first impression.

[schirallicpa]

accrual

[Lee B]

Doesn't there have to be at least a down payment in 2014 ?

 

Plus you don't say what kind of entity your client is,  an accrual 1040 ???

[jklcpa]

My opinion without research is that a firm commitment letter does not constitute a sale. I think you need an agreement of sale with a sale date in 2014 and funds changing hands, even if it is only a downpayment. With that downpayment in place, you can then elect out of the installment sale by reporting the entire sale and gain in 2014. Basically, you have to question when the benefits and burdens of company ownership transfer to the purchaser.

 

Additionally, the purchaser has to be on board with the timing and reporting because they shouldn't be caught in a situation of late filing simply because your client reported the sale as occurring on an earlier date. As an example, if you reported that the sale occurred on 12/15/14, the purchaser would have that short period of activity for the remaining days in 2014.

[schirallicpa]

it is an S-corp.  The commitment is signed.  They are expecting downpayment/consideration within 2 weeks.  I will contact the attorney to push for a firm date to close on the transaction and have that in writing.

Good point Judy- on the making sure the sale date is reported by all the same way.  

 

thank you!! 

[OldJack]

I agree with jklcpa that you need an actual sale with a signed note or payment.  You must determine if the Shareholder of the S-corp is selling his stock or if the S-corp is selling its assets.  If assets are being sold both parties must file form 8594, "Asset Acquisition Statement", with their tax returns.