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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I am co-owner of S-Corp with my son. He wants to buy me out

Customer Question

I am co-owner of S-Corp with my son. He wants to buy me out but does not have cash now. How can I transfer stock now and get paid over time
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

That would bean installment sale.

An installment sale is a sale of property where you will receive at least one payment after the tax year in which the sale occurs. You are required to report gain on an installment sale under the installment method unless you "elect out" on or before the due date for filing your tax return (including extensions) for the year of the sale.

Customer: replied 9 months ago.
I was told there were special requirements when selling S-Corp to family member
Expert:  Lev replied 9 months ago.

What special requirements do you mean?
What are these requirements that you were told?

Customer: replied 9 months ago.
Have a 2nd son who went to Wharton for MBA. His tax lawyer told him installment method does not apply to Family Members? Is he wrong?
Expert:  Lev replied 9 months ago.

There are some limitations - that is correct.

We may not use the installment reporting method - but we may have an installment sale if your son doesn't have the full amount at the time of sale.

Expert:  Lev replied 9 months ago.

See here - page 7

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

Sale to a Related Person
If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property.

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