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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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Please elaborate steps to take in the sale of a business corporation.

Customer Question

Please elaborate steps to take in the sale of a business corporation. How, when and where to report the sale proceeds. Private corporation and only one stock holfder.
Submitted: 2 years ago.
Category: Tax
Expert:  jgordosea replied 2 years ago.

Greetings,

 

1. Is this a sale of the assets?

 

Or a sale of the stock?

 

If background is needed on stock sale vs asset sale please see the article at http://www.whafh.com/modules/publication/?action=view&id=38

 

2. Is there an S election in place for the corporation?

 

3. Did the owner contribute assets or only cash to the corporation?

 

4. Will the corporation distribute assets/liabilities or only cash on dissolution (if applicable)?

 

5. Will the proceeds from the sale all be received in the same tax year?

 

These items influence when, where and how the sale is reported.

Thank you.

 

 

Customer: replied 2 years ago.
This is a sale of asset, basically a chicken store with all the frying equipment, freezers and
inventory, Besides there is some consideration fo the daily sales the business is taking in and the number of years the business is running. This is a C Corp. The corporation will not be disolved and will continue functioning because it will be buying another business.
The proceeds will be received in the same tax year (2012).
Expert:  jgordosea replied 2 years ago.

Hello again,

 

When the corporation sells the assets, those sales are reported in the year the proceeds are received.

Most asset sales will be reported on Form 4797. See the instructions at http://www.irs.gov/pub/irs-pdf/i4797.pdf for a table of what section of Form 4797 to use for particular assets. Of course, most tax software will place the items in the proper sections based on inputs of sales price and holding period.

Gain or loss on the sale will be reported in the corporate tax return.

 

Both the buyer and the seller of business assets must report to the IRS the allocation of the sales price among the business assets on Form 8594 (Asset Acquisition Statement Under Section 1060) which will be attached to the buyer and seller's federal tax return for the year of the sale.

See http://www.irs.gov/instructions/i8594/ch01.html#d0e60 for the classes of assets that must be allocated part of the purchase price. Preferably the allocation amounts are agreed between the buyer and seller and specified in the purchase agreement.

The "consideration fo the daily sales the business is taking in and the number of years the business is running" is at least partly allocated to Class VII assets (in tax terminology- goodwill and going concern value).

 

Those are the main required forms for a corporation selling assets that will continue in existence.

 

Although it is much more technically demanding to qualify as an exchange rather than a sale and the later purchase of assets used in the trade or business, there may be use for Form 8824 to allow gain (and tax on the gain) to be defered into the replacement assets.

An intermediary is generally required to facilitate the exchange and prevent the seller from having access to the proceeds until the exchange is accomplished.

See http://www.irs.gov/instructions/i8824/ch01.html#d0e81

"Generally, if you exchange business or investment property solely for business or investment property of a like kind, section 1031 provides that no gain or loss is recognized. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized."

This may or may not be feasible or applicable to the situation; but when selling one business and buying another it can represent significant current tax saving.

 

New Jersey does require a purchaser of business assets to file Form C-9600

NOTIFICATION OF SALE, TRANSFER, OR ASSIGNMENT IN BULK but sales tax is likely not required as this type of sale is probably exempt as an occasional or an isolated sale. This is quite fact sensitive and should be verified with a local practitioner to sure the rules are applied properly to the particular facts. See www.state.nj.us/treasury/taxation/pdf/other_forms/misc/c9600.pdf

 

Those are the basics of a corporation selling assets to help inform you of the general rules. Please ask if you need clarification or start another thread if you wish to discuss a topic (such as like kind exchange).

 

Thank you.

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer: replied 2 years ago.
In the process of reviewing and summarizing it, please wait before I send you that and accept your answer.
Expert:  jgordosea replied 2 years ago.

Thank you.

Take as long as you need and also know that you can come back even after accepting for reference or to restart the discussion, if needed.

Best regards.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3040
Experience: I've prepared all types of taxes since 1987.
jgordosea and 7 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Here is what I understand ;-

Sale of asset to report on form 4797 - While filling out this form the sale price will be
identified as sale of stock.....?
For the classification - Form 8594 is required which will provide a breakdown of the purchase price item wise. Now this will be for both - Seller and Purchase or only seller will
fill out.
This is in case the business has to continue, if we wish to close the corporation, then we can mark it as a final return. Now what action the purchase has to take.
Customer: replied 2 years ago.
Thanks
Expert:  jgordosea replied 2 years ago.

Hello again,

 

Sale of asset to report on form 4797 - While filling out this form the sale price will be
identified as sale of stock.....?

Since this is an asset sale (and not a stock sale) each asset, or group, will be on the From 4797. Usually the depreciation schedule is used and the amount allocated in total for equipment sold is further allocated to the various assets based on the initial cost of the asset. Most tax software will allow the sales price to be entered in the asset schedule and will carry the sale to the Form 4797.

 


For the classification - Form 8594 is required which will provide a breakdown of the purchase price item wise. Now this will be for both - Seller and Purchase or only seller will fill out.

Both the buyer and seller must file this form. Preferably the amounts are agreed upon as part of the purchase negotiation and the form, or a similar schedule, is part of the agreement.

 

This is in case the business has to continue, if we wish to close the corporation, then we can mark it as a final return.

Correct.

 

Now what action the purchase has to take.

If an intermediary is not used to defer gain via an exchange, then the purchase of assets will be just like when the corporation buys any asset (regardless of the prior sale of other assets). The new asset will be recorded and depreciation will begin when placed in service by the corporation.

 

Please ask again if you have more questions.

Thank you.

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