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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4028
Experience:  35 years tax experience, including four years at a Big 4 firm.
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My father unexpectedly and tragically passed away at the age

Customer Question

My father unexpectedly and tragically passed away at the age of 66. My mother inherited his dental practice which is a C corp. I have found a buyer luckily and want to make sure I structure the deal correctly to have the most preferable tax treatment.
They buyer wants it to be an asset sale which is obviously very common. If we sell the Corp as an asset sale will my mother get stepped up basis in the value of the company (date of death value) and therefore will we avoid having to pay taxes?
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: Date of Death Value for the company was 600k valued by a dental broker. We are only selling the practice for 400k.
Submitted: 1 month ago.
Category: Tax
Customer: replied 1 month ago.
Also my father owned 9/16 shares (now inherited by my mother) and his partner owns 7/16 shares. We have the option to purchase her goodwill, stock, and assets for 12,500. We are going to exercise this option so that when we sell to the 3rd party my mother owns the entire c corporation. We will be liquidating the c corp after the sale. There is a 55k business line of credit that will paid with the proceeds from the sale, 10k in equipment loan, 27k broker fee paid to the dental broker, and a 42k loan plus the 12,500 to my dads partner to buy them out prior to closing.
Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

I am sorry about your loss of your father.

You need attorney and CPA to help you with the deal. Don't do this on your own.

For your bot***** *****ne question. Yes, you are selling it as a loss for 200,000 from the sales price and the basis.

However, for your accountant and attorney, please share the considerations below with them.

1) The business value could have been valued too high. The IRS and state tax authorities can challenge this business valuation. The owner's passing needs to be calculated in and adjusted. A personal service company without the sole service provider can reduce its value significantly. For example, if this company is held as it is just for three months. Its value could become 0.

Therefore, the 400,000 purchase price could be the market price.

We are not selling real estate or stocks for which the market prices can be much easier appraised.

2) Make sure your mother's name is ***** ***** the share of owners.

3) Make sure all the assets and liabilities are calculated and accounted for, especially the liabilities.

I saw your second posting which is significantly different than where we are going with the first posting.

I would like to offer premium service for us to have more Q&A or even phone time. It is apparently a professional conversation. We would like to cover all aspects well.


Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

If you can purchase 7/16 shares for 12,500, it would be very hard to adjust for a business value of 600,000 for 16/16 shares, even if we count all the half of her liabilities in the debt.



Customer: replied 1 month ago.
Dental practices are valued between 40%-70% of prior year gross rev. the practice gross rev was $1M so that's were the 600k value comes from. I don't want to try to carry over a loss just want to clear with no taxes for my mother. the agreement between my father and his partner was written in such a way so that if my father passed and she did not buy us out we could buy her shares, assets, goodwill, for 12,500 until the year 2020. At that time she would have been fully vested as a partner and this option would have gone away. She has only been with my father as an associate since 2009. The practice has been established since the 1970s.The 42k loan was also part of her buying into the company. it used to be 125k going back to when it was originated. My fathers original partner had Alzheimer's and my father bought him out for the 125k back in 2006. It should be noted that the C-Corp pays this loan every month. It is not paid by my dad's partner.
Expert:  Dr. Fiona Chen replied 1 month ago.

Dear Customer,

Is the business professionally valued? I am accredited in Business Valuation by the AICPA. The method and logic do not sound correct. You may want to just forward my concern to your professional business valuation professional.

Even if you do not want to sell with a loss, you could be selling it with a gain and short report income if your valuation cannot be defended. To sell it with a gain or loss needs to be accounting sound and a sort of "scientific" and cannot be decided by our own will.

Would you please advice what your question is about? I thought in the first posting, you were going to find out whether you can register a long term capital loss of 200,000.

No matter who pays for the company debt, normally, by name, when a person holds shares of a company, the person is liable for the company's debt and his/her share value is also affected.



Expert:  PDtax replied 1 month ago.

Hi from just answer. I'mCustomer I can assist since the first expert opted out.

There is a lot do do here, and answering your questions will take concentrated effort. I propose an Offer of Premium Service and a phone call to discuss. Accept, and I can assist after 6 pm EST tonight.


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