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rakhi.v, Tax Attorney
Category: Tax
Satisfied Customers: 4542
Experience:  Have graduated in Law with specialization & emphasis in Financial Laws and has working experience of over a decade.
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My wife and her mother were equal owners of 1000 shares in

Customer Question

My wife and her mother were equal owners of 1000 shares in an S Corp. They both invested $100,000 in a few years ago. Her mother put an additional capital contribution of $392,000 eariler this year. In April of this year, her mother sold her 1000 shares to my wife for $1.00. At the end of this year, my wife has 2000 shares and it cost us $100,001 in total. There was a loss and Schedule K-1 is planned to be for this year, my wife 70% and her mother 30%. Next year it will be wife 100%. Does the balance company's balance sheet list the additional paid-in capital of $392,000 show up on the balance sheet at the end of this year or is removed since my mother-in-law no longer is an owner on December 31, 2015?
Submitted: 1 year ago.
Category: Tax
Expert:  rakhi.v replied 1 year ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

From what I understand from your question, it is just the "shareholding" pattern that has changed in your S Corp. There has been NO buyback or return of capital. All that has happened is a transaction between two shareholders, i.e. your mother and your wife.

As I understand, this being a transaction between two shareholder and NOT between a shareholder and the S Corp, there is NO CHANGE in the capital structure. So, once the $392,000 that were infused will CONTINUE to remain in the S Corp.

So, as my understanding of your situation goes, there will be NO Change in the additional paid in capital and it will continue to show up on the balance sheet. The holding has changed NOT the capital.

I am sure this would help.

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Warm Regards,