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S Corp tax question: A professional firm has two 50/50

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shareholders. The firm is going...
S Corp tax question: A professional firm has two 50/50 shareholders. The firm is going thru dissolution, and ceased operations under the old EIN as of 9/30/17. There is currently a "Customer List" asset on the books, and an offsetting note payable liability to the firm from whom the customer list was purchased. The shareholders have each subsequently began new firms with new EIN's. The shareholders have each taken with them the clientele that they previously served. It is not a 50/50 split in clientele, nor the note payable. How is the dissolution and split of assets/liabilities reflected on the 2017 1120S? And, would the creation of new notes payable from each respective shareholder to the former owners of the customer list spark any sort of additional tax liability on them, as opposed to leaving the note payable in the existing EIN?
Submitted: 8 months ago.Category: Tax
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10/6/2017
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 8 months ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,069
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 8 months ago

You very likely have no corporate tax item to report.

Each shareholder is receiving a portion of the customer list in Lewiston exchange for their shares. The shareholders report gain or loss, not the corp.

I like to leave the remaining assets on the final 1120s balance sheet to support the gain or loss calculations of the shareholders.

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Tax Professional: PDtax, Certified Public Accountant (CPA) replied 8 months ago

The notes go to the shareholders as do their customer list and accumulated amortization.

Thanks for asking at just answer. Ask follow-up if needed, or rate with positive feedback once complete. I'm PDtax.

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Customer reply replied 8 months ago
Right, I understand it wouldn't be a corp tax issue, but I need help determining how to "distribute" the assets and liabilities. And the part where I was asking about additional tax liability, I was referring to the note holders. The firm that the client list was purchased from is reluctant to write new notes to the shareholders in the 2 new firms in place of the existing note in the firm being dissolved because they fear it will appear to be a payout of their installment agreement.
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 8 months ago

So this is a purchase of their customer list by s third party, not a dissolution. This gets involved, typically driven by the purchase contract with each. Things like covenants, validations, which clients, payment terms, who is selling the customer list will all drive the treatment.

I think this could get involved, and take more time than a typical JA question. See my offer of premium service to review the sale and assist.

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Customer reply replied 8 months ago
That's part of my confusion. The distributions of notes payable, customer list, accumulated amortization/depreciation and other assets will not be distributed evenly, as the shareholders are taking the clients actually served and not a 50/50 split. How does that work? Just force the distributions to be actual as opposed to computed?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 8 months ago

So the transaction is still being put together.

I'll offer some phone conference time to help put the transaction together.

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Customer reply replied 8 months ago
No, the purchase of the customer list and resulting note payable happening in 2016. The business is now in dissolution in 2017, needing to file a final 1120S and K-1's for 2017. The distribution of income thru 9/30/17 is no problem. It's a 50/50 split. But, the assets and liabilities are not being distributed 50/50 because of the shareholders not each taking 50% of the customer list. This is what I don't know how to handle.
Customer reply replied 8 months ago
My original question of how to handle the distribution of assets not being even hasn't been answered. You've answered lots of questions, but not the one I actually need answered. The money will be split evenly, but not the other assets. How is this handled? I don't want or need phone support.
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