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2 of my clients are C Corp and both were bought out by a

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company on the installment basis...
2 of my clients are C Corp and both were bought out by a company on the installment basis. I feel this is very complicated in some ways and I know I don't know everything there is to know about this type of transactions, but they insist that I can handle the situation. I'm afraid I may need some phone contact also. One of the companies that sold was told by one of the stockholders father-in-law that this was not a capital gain situation and rather had the 3 stockholders make estimated tax payment personally. My other corporation was owned by the other 3's father. He needs to make estimated tax payment also, but I'm not sure I know how to quide him
Submitted: 2 years ago.Category: Finance
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1/8/2016
Financial Professional: Shawn P Adamo, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions. replied 2 years ago
Shawn P Adamo
Shawn P Adamo, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
Category: Finance
Satisfied Customers: 2,884
Experience: CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions.
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Good Morning.

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Financial Professional: Shawn P Adamo, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions. replied 2 years ago

Unfortunately I will pass on this question as the price is way too low. Hopefully another expert might be willing to help you.

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Customer reply replied 2 years ago

I didn't expect to pay just what is listed. I excpected to pay a fair price for the information I need.

Financial Professional: Shawn P Adamo, CPA, Professor, CFP. CGMA, Business Consultant, Professor, PFS I have decades of experience answering these questions. replied 2 years ago

Had you offered more it would have been considered a fair price. I will opt out.

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 13,243
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi,

...

OK first, the bit about the capital gain is nonsense ... a gain is a gain ... NOW if he knew enough about the sales price and basis of the seller to know there wasn't a gain, that I suppose THAT's possible.

...

But as it sounds like you already know ANY time that proceeds of sale come in over more than one tax year, it's an an installment sale and that's an automatic .. They CAN opt out of installment sale taxation and pay the gain all in the year of sale ... but that would very possibly leave them with a tax bill that's bigger that what they received from the buyer in that first tax year (the very reason FOR installment sale taxation)

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

you should probably take a look at this: https://www.irs.gov/taxtopics/tc705.html

...

From there:

...

Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received. You do not include in income the part of the payment that is a return of your basis in the property. Use Form 6252 (PDF), Installment Sale Income, to report an installment sale in the year the sale occurs and for each year you receive an installment payment. You will need to file Form 1040 (PDF), U.S. Individual Income Tax Return, and may need to attach Form 4797 (PDF), Sales of Business Property, and Form 1040, Schedule D (PDF).

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

Basically the amount that's report each year works likel this:

...

Annual Gain=Total Gain / Contract Price × Annual Payment

...

Total gain, of course, is, as always, Selling Price – Selling Expenses – Adjusted Basis of Property + Sellers Liabilities That Are Assumed by the Buyer

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Financial Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago

And finally, you report the interest component as you would for any other interest received

...

If the contract's stated interest is below market rates (or if they simply didn't include it) , part of the stated principal may be re-characterized as unstated interest or original issue discount for tax purposes, even if you have a loss. You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount. The AFRs are published monthly in the Index of Applicable Federal Rates (AFR) Rulings.

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