Sale of company assets

[chadw]

New client brings me his K-1 which has all of the following as ordinary income.

S Corp sold most all of its assets in 2007. Still operating under same EIN but now not doing same exact business that it was doing before.

Purchase price was allocated by putting towards things like trade name, customer relations, fixed assets, developed technology, inventory, and goodwill.

Client thinks all of the proceeds except for some of the depreciation recapture should have been classfied as long term capital gain on his K-1 instead of ordinary income.

I am no expert on corporations and don't do them except for small non-complex ones.

Should this be available to him as long term capital gain on the flow through or not?

[RoyDaleOne]

I think your customer is correct.

Goodwill, trade name, etc. capital gains on sale.

[indyscott]

I hit the button for "fast reply", but there's really no "fast answer" except to say it's not all lt cap gain. Selling inventory, for example is obviously ordinary income. Selling cap assets used in the business is a sale of a capital asset, and if the asset was put in service over a year before disposal, it is long term. The sale/purchase agreement s/ have listed the things out separately and allocated the purchase price to them. If not, it needs to be done.

You start out saying that the K1 lists everything as ordinary income. The 1120S on which this sale s/have been reported may need to be amended, and a new K1 produced.

That's my "fast reply"