Level 3

Reporting Sale of S-Corporation

Forum|Forum|2 years ago
September 15, 2023
2 replies
32 views

Hi Everyone,

I have a client who sold his S-Corp business and I want to make sure I set up the sale correctly for 2022. The client was a sole owner of the S-Corp. It was a chiropractor practice.

The sale to a colleague was for approximately $120k and included transfer of clients and medical equipment/instrumentation and chiropractic tables. It was one transaction, and they did not bother to break it down or distinguish the assets. I know to set this up on his personal 1040 schedule D, with the number of shares he sold, but my biggest confusion is with respect to the basis. Also, I want to confirm how to close out the 1120S with respect to the sale and final return.

On the 1120S - The medical equipment/tables are listed under his assets (and the balance sheet) but are fully depreciated now. The other item he has on the balance sheet is Goodwill from when he had purchased a clientele from another chiro years ago, and about half of that was amortized. The biggest items on his balance sheet are cash for assets and retained earnings under liabilities. I believe cash and retained earnings will be excluded from the basis...?

When he started the business his initial investment/basis was about $300k ($160k in medical equipment purchases - now fully depreciated, and another $140k in Goodwill - now half amortized). It is the Goodwill that throws me off and also reporting disposition of the assets.

Overall, for his basis on 1040 Schedule D, do I use the $70k - what is left of his Goodwill investment? and proceeds $120k? But how do I report the disposal of the assets on 1120S to prepare final return?

Any advice or guidance would be greatly appreciated. Thank you

This topic has been closed for replies.

BobKamman

Level 15

And this is for a return that is due tomorrow? Half of the narrative sounds like it was an asset sale, the other half sounds like it was a stock sale.

M

MikiDAuthor

Level 3

Yes, he's one of the worst procrastinators I have ever known...

It's a stock sale for sure because the corporation is now closed, but I'm not sure how to prepare the final 1120S return showing no remaining assets and how to treat the goodwill...

IRonMaN

Level 15

But if it was a stock sale, the corporation would still be open. Have you read the actual sales agreement?

Slava Ukraini!

qbteachmt

Level 15

Here is where it gets confusing: "and included transfer of clients and medical equipment/instrumentation and chiropractic tables."

If your client sold the shares of the corporation, the corporation would still exist and still own that equipment. If that transfer is in fact what sold, then the shares were not also sold. Your client still has a corporation, which now has no reason to be in business and would be a shell and can be closed. Or, your client sold the equipment and assets, as well as an empty shell of a corporation.

This is another conflicting statement: "I know to set this up on his personal 1040 schedule D"

The corporation sold its assets, liabilities, and reason to exist and operate. That is not your client's personal 1040. If the shares were sold, then no assets, liabilities, or other changes happened. Or, you have both conditions: the corporation reports all its sales and your client reports the sale of shares of an empty corporation which still exists.

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