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We need to be clear what exactly the trust selling?If the trust is selling shares of C-corporation - then you are correct - we may assume that the FMV of shares is $500k. - and use it as the stepped up basis of shares.So the trust will report the sale of C-corporation shares.But if you are selling business assets - the situation might be different - and these assets are either sold by the corporation OR distributed to the trust and sold by the trust. So reporting would be more complex in this case.
The trust may sell on installment and receive a note instead of cash - that is not an issue. However - that is a separate issue that will add complications to reporting and there will be interest on the installment obligations which is reported as interest income.
So far - the inherited asset is shares of C-corporation - and shares of C-corporation get stepped up basis - assuming $500k.
Assets that are owned by the corporation are NOT inherited and we need to use their original basis.
When assets are distributed from the corporation to the shareholder (the estate) - they are treated as sold on the corporate tax return - and the corporation will recognize gain.
That gain is distributed to the shareholder as dividends.
The rest is distributed as non-cash distribution.
Both are reported on form 1099DIV.
Next step - dissolution of the corporation reported by shareholder as the sale of shares where the basis is a stepped up basis (for inherited shares) and non-dividend distribution is the sale price. So - there likely will be capital loss.
For distributed business assets - the basis in hands of the shareholder (trust) would be their fair market value.
Now - we need to report the sale of business assets - the form 8594 is used when the ENTIRE business or SUBSTANTIAL part of the business is sold as the asset sale.However - there will not be any gain as selling price will likely be the same as the basis.Thus - we need to put numbers into each step - and verify taxable income on each step.
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