sale of S Corp Stock?

[tkamba]

My client sold her S Corp stock in mid-year. For 2009, she has had an operational loss. The new owner is taking the same FEIN #. Can I file a return for the short year and give her a K-1 with the losses she covered this year or is she stuck with just adding it to her stock basis and limited to the $3,000 per year?

I know that the sale should have been an asset sale but who speaks with their CPA before the contract is written? New owner insisted on stock purchase because he did not want to pay to set up a new corp!! Paying taxes is so much cheaper.

[OldJack]

The S-corp books should be closed as of the date of sale of the stock and the information used to prepare the seller's 1120S-k1 at year end. Only one 1120S is prepared for the year with 2 1120S-k1's attached (old owner and new owner). The corporation continues as tho nothing has happened except a change in shareholders and officers as listed on the 1120S. If it is to late to close the books as of the date of sale, then information for the seller's 1120S-k1 is the year-end numbers prorated on the number of days of stock ownership.

The seller's stock basis is increased/decreased by the seller's current 1120S-k1 numbers and the sale proceeds reported on 1040 Sch-D.

[Lynn EA USTCP in Louisiana]

The S-corp books should be closed as of the date of sale of the stock and the information used to prepare the seller's 1120S-k1 at year end. Only one 1120S is prepared for the year with 2 1120S-k1's attached (old owner and new owner). The corporation continues as tho nothing has happened except a change in shareholders and officers as listed on the 1120S. If it is to late to close the books as of the date of sale, then information for the seller's 1120S-k1 is the year-end numbers prorated on the number of days of stock ownership.

The seller's stock basis is increased/decreased by the seller's current 1120S-k1 numbers and the sale proceeds reported on 1040 Sch-D.

The sale of stock is generally the seller's preferred type of sale, as it gives rise to capital gain treatment on the sale of the stock. On the other hand, buyers generally prefer to buy the assets, thereby avoiding the assumption of any liabilities of the corporation.

And, the allocation by number of days is the default to report the k-1 information, unless an election was made by the shareholders at the time of the sale.

Lynn Jacobs, EA, NP

Kenner, LA

[OldJack]

>>unless an election was made by the shareholders at the time of the sale.<<

Its not an election necessarily documented at the time of the sale.

It is an election statement attached to the 1120S at year-end that declares consent by all shareholders (shareholders as of the date of the sale), including the seller shareholder. See page 21 of the 1120S instructions for election details required to be attached to the tax return.

[tkamba]

Thank you for your help. I will have to speak with the new accountant handling the new owners to get the K-1. The new owners are already behind in their monthly tax payments (sales tax & payroll taxes) so, who knows when they will get the income tax forms completed.