If the Corporation is taking benefit by deduction the expenses that it is paying to the shareholder than this will not be considered as payoff to the shareholder.
The Corporation should pay $250K as buyout price for the 100 shares and record these as Treasury Stock (which will be a reduction in the equity account) and a due to stockholder. So journal entry will be
Treasury Stock Dr $250K
Due to Stockholder(outgoing) Cr $250K.
Any amount that the Corp pays should reduce the stockholder's loan account and not be reported as payment for fees and services. Fees paid for health, life and other insurance can, however, reduce the loan account. In fact by paying Form 1099 income the corporation is having the shareholder pay tax on something that it has actually not earned.
THe stockholder (on his taxes) will report this as sale of stock for $250K and reduce his basis in the stock to determine his gain or loss.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
If they all agree to change the agreement than they may do so.
However, if the business has built some goodwill than I would suggest that the buyout be carried out at fair market value. Maybe the S Corp should buyout the share for the amount that has not yet been paid and reported as service payments as payment towards purchase of stock and not claim it as an expense.
You do not have to assign the stocks to the remaining shareholders. These stocks will remain the the corporation and can be reissued to some other stockholder joining into the corporation.
If you want, the corp can give these as stockdividend and hence you can transfer it to the 2 remaining shareholders. But, you do not have to do so.
Earlier the stockholders were 100, 100, 100 share owners .....do the sharing was 1/3rd
now they will have 100, 100 shares ....so they will be 1/2 owners.
If you assign 50 shares to each of them-
they will have 150, 150 shares....so in essence they will be 1/2 owners only...
So does not make a difference whether you assign the shares or hold it as treasury stock in the S Corp.
You will report the closing shareholder % share as 0....you will report the distribtion to him on K-1 on Line 16.
You will report loan payable and not loan receivable.
yes. you will report the purchase, distribution on K-1 and no gain/loss will be recorded in the books of the company.