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Sale of a business: Seller and buyer agree to using book basis of each

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Sale of a business:...
Sale of a business: Seller and buyer agree to using book basis of each asset as the selling prices. Accordingly, there is no depreciation recapture. There is no inventory. The only item on which there would be a gain is goodwill. The payment plan would span over 5 years and would be congtingent on such things as the seller remaining an active employee and the sales remaining above a certain amount. The seller has the option of acquiring corporate stock of the buyer or cash. If seller elects to receive stock, is that stock (FMV) taxable at the time or receipt, or does it merely have a basis of $0 at the time he sells it.
Submitted: 5 years ago.Category: Tax
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4/1/2012
Tax Professional: Stephen G., Sr Income Tax Expert replied 5 years ago
Stephen G.
Stephen G., Sr Income Tax Expert
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Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

In the circumstances you describe, where the buyer is purchasing assets of the seller, it doesn't matter whether the seller receives cash or stock. If the seller takes the buyers stock, then the seller's basis in the stock will be the fair market value of the buyer's stock used to report the seller's gain using the installment method.

Customer:

I don't understand your answer. Since we are talking about basis of the stock received, is it taxable when the stock is received (for example every 6 months for 5 years), or only upon the disposition of the stock received, ie, could the stock be sold at appropriate times and have the benefits similar to an IRA?

Stephen E. Grizey :

It is taxable at the time of receipt based upon the stock's fair market value.

Customer:

I accept the answer, but why am I being charged $47 when the amount was supposed to be $39.

Stephen E. Grizey :

I have no idea, we don't (can't) get involved in the transactions between you & the site. What I can do is ask customer service to review the situation and work it out with you.

Stephen E. Grizey :

I have sent a note to customer service and asked them to straighten out the billing from $47 to $39

Stephen E. Grizey :

However you haven't ACCEPTED, so until you do that I don't get compensated, just the site does.

Stephen E. Grizey :

Have you gotten your billing question fixed? Please remember I don't get credit for my work unless you hit the "ACCEPT". Thanks very much. SEG

Stephen G.
Stephen G., Sr Income Tax Expert
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