Hi, has the C-corp been paying taxes since 1973?
As a C-corp the company would have been filing taxes itself (where an S-corp files, but the actual tax liability flows through to the owner)
If , a C-Corp, here's the form that would have been used: 1120, U.S. Corporation Income Tax Return (PDF)
In an S-Corp, THIS FORM would have been the form filed ... but the profits would have been distributed via a form K-1 and carried to the personal 1040 return: www.irs.gov/pub/irs-pdf/f1120s.pdf
If you can let me know a little more of the details, I can best answer your question, and help you figure this out. I COULD very well be that (with the new 15% cap on capital gains to a higher income than before) if this was an S-Corp you may have as little as a 15% tax, or even zero, if your income was below a certain level
Let me knos ...
We have been filing taxes as a c corp since 1973 and separate taxes personally.
we have been filing 1120 for the corporation
Yes, C-Corp can elect installment method (ON amount financed)
In this type of transaction, the buyer of a business agrees to pay the seller a certain amount of money over a fixed period of time. Under this approach, the IRS has ruled that only the amount of distribution in any given year is subject to any applicable taxes in proportion to the total due.
See this from IRS:
C-Corporations: Capital gains from an installment sale are carried forward from Form 6252 and reported on Form 1120, Schedule D. Short-term capital gains are reported in Part I. Long-term capital gains are reported in Part II. The net short- and long-term capital gains and losses are carried forward to Form 1120.
Here's an excellent overview, with the qualifications that may apply and some best practices for doing it this way too (note: escrow of payments)
“If a buyer is allowed to pay the purchase price over some extended time period, such as five years, the seller may be able to defer the overall gain on the transaction until payments are actually received by the seller (along with applicable interest). However, no deferral is allowed with respect to any portion of the transaction that represents depreciation recapture (described in Section 4 above) or gain on ordinary income type items such as accounts receivable or inventory.
A seller who provides seller financing is of course at risk for the buyer not operating the business successfully and the possible non-payment of the installment note. In addition, if the deferred portion of the sale price exceeds $5 million, the IRS has established rules that require the seller to make interest payments that essentially negate the benefit of the installment sale tax deferral. Sellers who make an installment sale are permitted to “elect out” of the installment sale method and pay all the tax related to the transaction up front. This may be desirable in some situations, especially if the seller believes capital gain rates will increase significantly in the years when payments are to be made.
Buyers may also establish escrow amounts where a portion of the purchase price is put into escrow and paid to the seller at a later date after it is clear that the seller’s representations and warranties in the transaction agreements were not violated. Such escrows can be structured to provide the seller with installment sale treatment so that the seller does not pay tax on the escrowed amount until the escrow “breaks” and the proceeds of the escrow are paid to the seller.”
Hope this helps,
If we can convert to an S corporation prior to the sale, would the installment payments be taxed under the c corp, or the s corp.
Yes, Arlyne, it WAS changed back (made permanent), as with some of the other provisions)
S corporations can be subject to the built-in gains tax of section 1374 if they used to be C corporations or if they acquired assets from C corporations in a carry over transaction such as a Co-Corp conversion to S-Corp.
The tax, however, only applies to the extent the S corporation has “net recognized built-in gain” in a tax year beginning in the “recognition period.”
The American Taxpayer Relief Act of 2012 (the “New Law”) includes a provision that shortens the tax recognition period to five years for purposes of determining net recognized built-in gain during tax years , beginning in 2012 and 2013.
Here are the code citations:
See sections 1374(d)(8) and 1.1374-1(d) and -8 for rules relevant to carryover basis transactions, including the determination of the recognition period for assets acquired in such transactions. Except to the extent specified otherwise, all section references are to the Internal Revenue Code of 1986, as amended, or the Treasury regulations promulgated thereunder.
See section 1374(a). Net recognized built-in gain is the base for the tax. An S corporation’s net recognized built-in gain generally is determined by reference to the corporation can be limited by the corporation’s net unrealized built-in gain (“NUBIG”) limitation or its “taxable income limitation” for the year.
Very generally, an S corporation’s RBIG and RBIL reflect recognized built-in gains and losses (and some income and deduction items) that are viewed as attributable to a C corporation period. See sections 1374(d) and 1.1374 -4 for the technical definitions of these terms.
Here's the full article:
Thank you for all your help. It has been a great help where others have not been able to give me information that I could even understand. If you get anything else that you think might be of additional assistance, you can email me direct if you want XXXXX@XXXXXX.XXX