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CGCPA
CGCPA, CPA
Category: Tax
Satisfied Customers: 3820
Experience:  over 40 years experience in tax matters
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Im in negotiation to sell a small business for first quarter

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I'm in negotiation to sell a small business for first quarter of 2011. It is arms length but know the buyer for many years. Where he is short on the down payment, he suggests that he pays off two of my outstanding bills (which I was going to do with DP). If he writes a check for $12,000 in Dec 2010 and the other buyer the same, for $12,000, then....in Jan 2011, they both do the same, paying off 2 large debts that I want to get rid of (second mortgage and a credit card), I understand I don't have to report anything as the recipient but do they have to report it to IRS as a gift, even though it may be below their lifetime threshold? Seems like the only way to get this done to help them and also to accomplish what I need to have done.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

My concern is that what you are suggesting here could be construed as tax evasion, a criminal activity. You are selling them a business. You cannot receive a gift for this. The penalties against each of you can be much larger than it can possibly be worth. Additionally, if they go along with this approach and call the payments a gift, it will lower the basis they will have in the business and cost them not only the "gift" amounts but tax savings as well.

 

All in all it does not sound like a very good idea to me. If you wish to proceed along this path please protect all of you and speak with an attorney.

Customer: replied 6 years ago.

Sorry I didn't reply earlier as I've been away from the computer. Ok, I understand your concern here and of course, would not consider nor would I request any help in attempting criminal activity.

But back to the original question presuming there was no business sale, would I be correct in asking if two people gave me gifts of up to $13,000 each in 2010 and up to $13,000 in 2011, that they would not have to report this since it is not above the annual exclusion amount? Thanks, XXXXX XXXXX be accepting your answer as soon as I get your reply.

You are correct in that. I am also happy to hear you have abandoned the original idea since it would never be an appropriate decision and could cause major problems for you and the others.
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