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S Corp sole shareholder dies and stock is inherited by ...

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S Corp sole shareholder dies...
S Corp sole shareholder dies and stock is inherited by wife. 3 months Wife sells 100 percent of assets for 500K, basis and FMV of assets 200K. the remainder is goodwill and will result in 300K of capital gain passing through to shareholder. The stock is then liquidated. Is she not entitled to a 300K capital loss for the stock due from step up? this loss will offset the cap gain from the K1?
Submitted: 9 years ago.Category: Tax
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5/24/2008
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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What is the value of the stock in the S Corp as of the date of the stockholder's death?

You may want to get the appraisal done in order to determine the fair market value of the stock as of the date of his death. If the fair market value of the stock is close to the sale price than their may be no tax due.

Yes, sale of assets will be reported as gain on K-1 and than her stock sale(disposition of stock) will be reported as a loss. So this will be an offset.

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

 

RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Customer reply replied 9 years ago
Reply to RD's Post: I am sorry, but the answer you gave is a simple agreement with me. perhaps I am mistaken but I wanted something authoritative such as a cite in case we are audited.
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

I will try to get your some authoritative guidance in this matter later tonight. But, I am positive that the tax consequences will be as discussed above.

I have an appointment and will not be available for sometime. Sorry about that.

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

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Customer reply replied 9 years ago
I am a CPA and posted a pretty tough scenario. RD's answer was not helpful, he simply agreed with me. That is not an answer. Upon requesting a cite, he said he would but has not yet. His response is , as I see it, no better than posting to an open internet blog.
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

I am still researching this issue. I did not get any direct guidance but you need to connect the dots to make a determination-

Based on my preliminary research-

The taxable gain generally passes through to the shareholders. The stock basis is increased by the shareholders' share of this gain.This increase in stock basis should either decrease the gain recognized or increase the loss recognized on the liquidation by the shareholders depending on the stock basis.

section 331(a)(1), it is provided that amounts distributed in complete liquidation of a
corporation shall be treated as in full payment in exchange for the stock.

Also, Sec 1366 states that the shareholder's pro rata share of these items is taken into account on the shareholder's final return

here is a link to Sec 331amd others for your reference-

http://frwebgate.access.gpo.gov/cgi-bin/get-cfr.cgi?TITLE=26&PART=1&SECTION=331-1&YEAR=2003&TYPE=TEXT

http://edocket.access.gpo.gov/cfr_2003/aprqtr/26cfr1.1001-1.htm

http://edocket.access.gpo.gov/cfr_2007/aprqtr/26cfr1.1366-1.htm

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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