How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask socrateaser Your Own Question

socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33558
Experience:  Retired (mostly)
Type Your Tax Question Here...
socrateaser is online now
A new question is answered every 9 seconds

I need to know some advice on how to structure the sale of

Customer Question

I need to know some advice on how to structure the sale of a franchise from an air conditioning company that is an S Corp. Will the sale be ordinary or cap gain on the "franshise" proceeds and should they sell the assets or the stock?
Submitted: 3 years ago.
Category: Tax
Expert:  socrateaser replied 3 years ago.
Hello,

It is always preferable to sell the entire corporation (the stock) than only the assets, because by selling all assets and liabilities, the seller is relieved of any potential liabilities, for example to creditors employees who decide that the sale is impairing their contractual rights with the corporation. Moreover, there is no corporation to dissolve -- no administrative paperwork or additional tax accounting.

The contrary argument is that selling assets simplifies negotiation because the buyer is better able to determine what he or she is purchasing. That's a benefit to the buyer -- not to the seller. So, whether or not it's better to sell assets or stock is mostly a question of who you're representing in the transaction.

That said, the sale of stock is a capital gain to the extent that the price exceeds the shareholder's basis.

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!

Customer: replied 3 years ago.

I believe this entity has been paying a franchise fee to a national based AC marketing company that has providing marketing leads for the past several years and now is interest in buying the client's accounts receivable/client base. In that instance, will they not be interested in the stock, and only want the customers/client list and how would that be "sold."

Expert:  socrateaser replied 3 years ago.
Accounts receivable acquired for services rendered are not considered capital assets, and a gain/loss is ordinary (Treas. Reg. 1.1221-1(d)).

The "client base" (customer list) is good will. Treas. Reg. 1060-1(b)(2)(B), and is treated as a capital asset.

As for your direct question re what the franchisor will or will not be interested in, were I negotiating, my position would be that I don't care what they're interested in, because if you want to buy only the assets, then the price will be higher so as to mitigate the risk of retaining the liabilities and the cost of winding up the corporation.

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33558
Experience: Retired (mostly)
socrateaser and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
toCustomerbr/>i have more info on the sale, The sale is for "territory rights" that were paid in a franchise deal that the taxpayer now wants to get out of and now become an independent owner. the franchise rights initial purchase has been totally amortized therefore I assume the $ 30 K he will receive for the sale of territory rights will be ordinary income to the corp which he intends to keep open and running. Correct? Remember is it a sub S.
Expert:  socrateaser replied 3 years ago.
In my opinion, if all 1231 gains exceed losses, and the gain exceeds any recapture amounts, then the franchise cancellation is a capital gain. IRC 1231(a)(1). Otherwise, an ordinary loss. IRC 1231(a)(2).

See Rev. Rul. 7-37.

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!



JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.