S-Corporation Stock Redemption Sale ~ Help

My client was part of a large medical practice.   He owned 3% of the shares.  He was ready to retire and the S-Corp purchased the shares back from him.

Thank you in advance for any advice that you can offer.

Hi Terry,

Yes S-Corporations do issue W2s all the time.  Matter of fact, they are required to pay reasonable compensation to the shareholders.  This client was a 3% shareholder in a large medical practice and was ready to retire.  The S-Corporation purchased his shares back for $65,000.  The $120,000 paid over six months was coded on his W2 as deferred compensation and was in addition to his regular compensation through 04/30/21 (the date of the stock redemption).  He also received a K-1 for the year for his share of profits through 04/30/21.  

Thank you in advance for any insight on the matter.

Bob,

THANK YOU!

Wow, my client meets the requirements of Section 1244.  Went from owing $6,000 to a refund of $26,000. 

In the process of researching and reporting it, I found nothing in the IRS publications.  Proseries has the reporting option buried and I do feel it should be a prompt under the "sale or complete disposition" sheet. 

My client will be thrilled.  As cynical as people can be about the IRS, I did have a feeling that the outcome I had come up with was inequitable and the intent of Congress was not to have a 40 years capital loss carryover ($3,000 per year) for undistributed ordinary income received, taxed and added to his basis.

Thank you and God Bless.  I hope you enjoyed France and Spain.  I am heading to Paris and London in October and hoping the CDC drops the testing.  I am reading about people flying to Canada and driving across the border to avoid the requirement.