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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Stock Sale
Expert: John Kirk, CPA
Date: 10/3/2008
Subject: Stock Sale
Question
QUESTION: Hi John,
A client of mine, a NY S-Corp is selling their stock, which is not something I usually come across. Please advise me on the following:
1. Since it's a stock sale, is there no bulk sale involved?
2. Does my client still file a final return?
3. How does the sale of the stock get reported on the tax return?
Any help or guidance would be highly appreciated.
Jeff
ANSWER: Since it is a transfer of stock ownership, you are correct in that it is not a bulk sale.
Under sec 1377 A 2, you split the year and file two 1120S. Not a final return as the S-Corp is still in existence.
The change in ownership is shown only on the schedule K-1 as a final K-1 on the departing shareholder. Nothing happens with the corporation.
Make sure you print "FILED PURSUANT TO SEC 1377 A-2" on the top of both forms.
You may have to file the second return by mail as your software may not allow you to file two returns electronically on the same tax payer.
John Kirk, CPA
www.johnkirkcpa.com
---------- FOLLOW-UP ----------
QUESTION: Thanks John, that was very helpfull. I do want to make sure of a couple other points:
1. When the company was first formed, I believe we only assigned $1,000 to the stock on the balance sheet. Therefore, if my client sells the stock for $100,000, does he now pay capital gains on $99,000 regardless of the amount of assets and capital improvements that were made?
In preparing the last tax return, the 1120S does NOT get marked final, only the shareholder's K-1, correct?
Thank you in advance for your help.
Jeff
Answer
If his stock is sold for $100,000 the gain would be determined by the difference in the basis of the stock. His basis in the stock is computed by adding the original price of the stock ($1,000) the accumulated net income allocated to him, less any distributions to him.
Correct only his K-1
John
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