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shareholder bases for sale of...
How much would it cost to get help calculating the shareholder bases for sale of stock of an S Corp from 100% to 50%, if the sale took place on January 1?
Submitted: 2 years ago.Category: Tax
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2/23/2016
Tax Professional: Lev, Tax Advisor replied 2 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,380
Experience: Taxes, Immigration, Labor Relations
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It is important to understand that the K-1 reflects the S corporation's items of income, loss and deduction that are allocated to the shareholder for the year. The K-1 shows the amount of non-dividend distribution the shareholder receives; it does not state the taxable amount of a distribution. The taxable amount of a distribution is contingent on the shareholder's stock basis. It is not the corporation's responsibility to track a shareholder's stock and debt basis but rather it is the shareholder's responsibility.

In computing stock basis, the shareholder starts with their initial capital contribution to the S corporation or the initial cost of the stock they purchased (the same as a C corporation). That amount is then increased and/or decreased based on the flow-through amounts from the S corporation. An income item will increase stock basis while a loss, deduction, or distribution will decrease stock basis.

There is a special worksheet to track the basis - see page 3

https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf

So far - we need such worksheets for ALL tax years.

If we are talking about the cost of such task - we need to think about time required to collect all K1s and prepare all these worksheets.

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Customer reply replied 2 years ago
Thanks. I already had all the resources you mentioned, I was looking for a confirmation of the calculations I already made. Sale took place Jan. 1 of year 2 of corporation's existence. In other words, year 1 was just one owner, very small loss, just startup costs. Jan 1 of year 2 the owner sold 50% to new business partner. Sale of stock was for no consideration.Please let me know approximate cost if I send you an excel spreadsheet with information already gathered. Sending you copies of 1120S for years 1 and 2 would be of no help since the original S/H prepared them, and incorrectly at that!It should take any CPA with experience very little time to review and/or correct, as basis statement preparation is part of S corp tax preparation. My concern is that I've never calculated basis for a sale, and with no consideration, and with a suspended loss at the time of the sale. Thanks!
Tax Professional: Lev, Tax Advisor replied 2 years ago

I am not clear what exactly you meant under "the sale, and with no consideration" - it doesn't sound as teh sale - but if shares are transferred with no consideration - that is a gift.

Please clarify why do you classify that transfer as a sale.

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Customer reply replied 2 years ago
Sorry for the confusion. Year 1: Owner/sole employee/100%S/H Year 2: Owner adds a business partner on 01/01 who is now 50% shareholder/officer/employee. New partner did not pay cash for buying 50% of the business. I am assuming his intangible payment was for clientele, knowledge, whatever. The business was basically brand new anyway. I am assuming it is a sale and not a gift because the new S/H had to do something in exchange for the shares, even though there was no money exchanged.
Tax Professional: Lev, Tax Advisor replied 2 years ago

When shareholders receive shares in exchange for contributing intangible assets that is not a "sale" - that is in exchange for contributing capital assets.
The issue is that these capital assets have NO basis as they are self-created - so S-corporation will not amortize these assets and might not have them on books.
But that is not a sale.
On the other hand - because contributed assets have no basis in hands of the shareholder - the basis of shares received in exchange of such assets will also be zero.
So that would be a starting point .
The situation might be different if a new shareholder was an employee of said S-corporation and received shares as a compensation of services he/she provided to that S-corporation.
In this case - we need to know the FMV of shares - which shoudl be reported as wages - and that value will become the basis.
.
In any case - I will send you an offer - and will review all your calculations.
I will provide by perdsonal email - so we may exchange information privately without posting on this public page.
Please verify and accept.

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Customer reply replied 2 years ago
Thank you. I'm confused, though. How do I correspond with you personally? I opened up the email offer and it is a no-response email. Also, I have two pending charges on my CC for $41 and $5. Will those payments go toward the offer price you emailed me, or is the offer an additional charge for the $41 and $5. I am assuming it will be a credit. Finally, I have asked the owner for the sale/transfer of shares information so that we can move forward. As soon as I have that I will officially accept. Thanks.
Tax Professional: Lev, Tax Advisor replied 2 years ago

Please be aware that experts do not have access to your account.

So - if you have questions about your charges or any other personal information - these must be directly addressed bu the customer service.

That is something I personally do not know.

Rules on this site prohibited me to share personal information or request your personal information on this page.

That is ONLY allowed via an Additional Service offer - that I send to you.

That would be up to you to accept or reject the offer.

If you accept - there will be a box to exchange information privately which will not be viewed by general public.

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Customer reply replied 2 years ago
Thanks. ***** understand correctly you have no control of what price is offered to me? Is the second offer actually the value of the service I have asked for, or is the sum total of both offers the value of the service? I'm sorry to be petty but it's a matter of principle. I just called customer service and the first charge is going to be added to the price of the second offer. I'm not really happy about that as my first question was simply an inquiry to know how much would it cost to receive help. When I call an attorney for an estimate there is some free back and forth information exchanged so the attorney knows what exactly the client needs and the what the background information is, so they know what to quote the client. If the sum of both charges is intended to be the value of the actual service I will receive, please let me know. Thanks so much! :-)
Tax Professional: Lev, Tax Advisor replied 2 years ago

I do have a control of what price offered via additional service offer,

but I do not have control over other service agreement that you agreed with the site - and I do not have much knowledge about that agreement.

If for any reason - you are not willing to accept MY offer - that is OK with me - you may simply reject it - and we may continue to communicate on this site.

So far - I answering all your question as you posted them...

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Tax Professional: Lev, Tax Advisor replied 2 years ago

.

I appreciate if you take a moment to rate the answer.
Experts are ONLY credited when answers are rated positively.
If you still have any doubts, need clarification - please be sure to ask.
I am here to help you with all tax related issues.

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