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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
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I recently sold my S corp as an asset sale. One hundred fifteen

Resolved Question:

I recently sold my S corp as an asset sale. One hundred fifteen thousand of the total sale is in a promissory note from the buyer's S corp to my S corp. I want to close down the S Corp. How do I distribute the Promissory Note to myself so I receive the income over the next few years? I have distributed assets to myself before which then show up on the Schedule K as income. However, the Promissory Note is for four years and I think I only need to claim the income as I receive it. In the general ledger or in Quickbooks what are the mechanics of distributing the Promissory Note from the S Corp to me personally.
Submitted: 4 years ago.
Category: Tax
Expert:  MequonCPA replied 4 years ago.

Dear et00u1ly -

 

Currenly, the S corp is allowed to report the gain on the sale of assets on the installment basis. If distribute the note, the entire gain is taxable on the S corp books and distributible to you.

 

Using the installment sale provisions requires that payments be received in future years. As the seller will not receive any payments in future years, the entire gain will be reportable in the current year.

 

See page 11 of IRS Publication 537 (link below) "Disposition of an installment obligation"

 

http://www.irs.gov/pub/irs-pdf/p537.pdf

 

Thus you will be paying tax without having the cash. The only income that will be reported on your individual return after the liquidation will be the interest income on the note.

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2327
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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