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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3375
Experience:  Over 20 Years experience
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i have inventory of $83,600 & equipment w/nbv of $3,756 left

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i have inventory of $83,600 & equipment w/nbv of $3,756 left on the books. The individual shareholders sold their shares for $400,000. How do I handle this and report it on their individual 1040's.

Randalltax :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

Randalltax :

What happened to the 83K of inventory and 3756 of equipment? Where did it go? Was it sold? Tossed in the trash? GIven to a shareholder?

Randalltax :

Is the entity an S-COrp?

Customer:

the person who bought the shares is using them. Yes it is an S corp

Randalltax :

Now you have confused me.

Randalltax :

Is there a new owner of all the shares of the corporation?

Randalltax :

How many shareholders before the sale?

Customer:

I have a settlement statement from the lawyer showing the sale of stock to an individual. There is no mention of inventory and equipment.

Randalltax :

How many after?

Randalltax :

The inventory and equipment are part of the corporation.

Randalltax :

You sold the corporation if you sold all of the stock

Customer:

Ok so it becomes part of their basis, yes?

Randalltax :

Whose basis?

Customer:

the shareholders who sold the stock

Randalltax :

No.

Randalltax :

It's nobody's basis. It's part of the corporation

Randalltax :

Inventory and equipment are the assets of the corporation

Customer:

the corp is liquidating

Randalltax :

The shareholders sold the company, not individual assets

Randalltax :

Whose tax return are you preparing? The new owner or the old shareholders?

Customer:

the old shareholders

Customer:

the old shareholders and the final s corp return

Randalltax :

The old shareholders will have a final K-1 based on the last day they were shareholders. There is NO liquidation if they sold their shares.

Randalltax :

I'm also assuming you are not preparing the corporation tax return

Customer:

yes i am preparing the corp final return

Randalltax :

Do you represent the purchaser of all the shares?

Customer:

no.

Randalltax :

When was the sale completed?

Customer:

June 2012

Randalltax :

I'll make this is as simple as I can.

Randalltax :

You do not prepare an 1120-S return.

Randalltax :

There was no liquidating event.

Randalltax :

Your stock SELLERS have a capital gain or loss on their shares. It is reported on Schedule D of the 1040

Randalltax :

Inventory, sales, revenues, etc and the corporation tax return are all the problem of the shareholder on 12/31/12

Randalltax :

If this answers your question today, won't you please take a moment and rate our answer.

R. Klein, EA and 4 other Tax Specialists are ready to help you