How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Zhannaxena Your Own Question
Zhannaxena
Zhannaxena, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 42
Experience:  I am a NYS CPA as well as a CIA, CRMA and Licensed Real Estate Agent.
68737206
Type Your Tax Question Here...
Zhannaxena is online now
A new question is answered every 9 seconds

I have a client with a C corp that they want to sell it to

This answer was rated:

I have a client with a C corp that they want to sell it to their son. The corporation is dormant at the moment, but will be used in the future. We are trying to come up with a fair value to sell it. It has $75k in common stock, negative $142 in RE and a loan payable to another entity they own....there are $33k in net assets.....There is no value, but we want to come up with a price for the stock.....Can we use the NOL carryforward as intrinsic value of the company....Thanks

Zhannaxena :

Hello, how are you?

Zhannaxena :

It's an interesting situation - does the company have any operations at all? Or assets?

Zhannaxena :

If not, why is it worth anything? Why wouldn't the son open a new corporation for the purpose of business instead of buying this one?

Zhannaxena :

Is it's only "asset" so to speak the NOL?

Zhannaxena :

hello?

Customer:

He wants to use the NOL carryforward....there are $33k of net assets....$75k common stock and a $100k loan that is owed to another entity.....need to come up with a value that will not be challenged by the IRS.

Zhannaxena :

Ah I see, well, there are multiple ways of valuing a business: assets, the name, intellectual property, revenue, ec.

Customer:

I am sorry when I say net assets of $33km, I mean fixed assets

Zhannaxena :

In this case, the $33,000 in fixed assets is wiped out by the $100,000 loan owed to another entity.

Zhannaxena :

How much is the NOL?

Zhannaxena :

Are the fixed assets liquid? Can they be sold easily for cash?

Customer:

That is my issue.....the return came off of a consolidated return in 2009, the 2010 NOL was $7k....I am not sure what the prior NOL was....

Customer:

The assets are hard only so can not be sold easily.

Zhannaxena :

I mean truthfully, this corporation is not worth anything. You would need to pay someone to buy it, not vice versa since it's currently in the red.

Zhannaxena :

Does it have any intellectual property?

Zhannaxena :

A good location? A memorable name with goodwill?

Zhannaxena :

What does this corp do?

Zhannaxena :

$7K in NOL must be multiplied by 0.35 (highest corporate tax rate) to determine the value of this carryforward

Zhannaxena :

The 2011 corp return was not prepared?

Customer:

Nothing......so can he gift it to his son.......or just give the stock??? Reassign the stock to his son.

Zhannaxena :

Yes, exactly, just give it to his son for a $1 unless there is a particular reason he wants a high valuation.

Zhannaxena :

Giving it for a $1 is still considered consideration.

Zhannaxena :

He can also gift it with a carryover basis.

Zhannaxena :

That's my suggestion to you, sell it for a $1 or give it as a gift to his son. The IRS will accept a FMV of $0 considering the circumstances - it really has negative value.

Zhannaxena :

Let me know if you need any more help.

Customer:

When you say gift with carryover basis....you mean the NOL right? Should they both sign a document???

Zhannaxena :

The NOL carries over either way - it's tied to the organization, not the owner.

Zhannaxena :

Yes, there should be a formal document either gifting or selling the corporation to the son. And course, it should be signed and notarized.

Zhannaxena and other Tax Specialists are ready to help you