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I have a client selling his business - a Single Member LLC…

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Second opinion] I have...

Second opinion] I have a client selling his business - a Single Member LLC filing as an S-Corp. Allocation is Fixed Assets $140,000 Goodwill $560,000 Payment is $300,000 at closing, $250,000 Note Payable over 5 Years AND $150,000 Common Stock in Buyer's Corp.

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

How do I record all this? Have heard Sec 721 allows for him to NOT report/pay taxes on the $150K stock until he sells it?

Submitted: 4 months ago.Category: Tax
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Answered in 22 hours by:
12/19/2017
Tax Professional: Lev, Tax Advisor replied 4 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,652
Experience: Taxes, Immigration, Labor Relations
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Here is section 721

https://www.law.cornell.edu/uscode/text/26/721

(a) General rule

No gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.

(b) Special rule

Subsection (a) shall not apply to gain realized on a transfer of property to a partnership which would be treated as an investment company (within the meaning of section 351) if the partnership were incorporated.

So far - that section has NO relation to selling the business and not related to your situation.

.

However - in this situation we have an installment sale...

An installment sale is a sale of property where you'll receive at least one payment after the tax year in which the sale occurs. You're required to report gain on an installment sale under the installment method unless you "elect out" on or before the due date for filing your tax return (including extensions) for the year of the sale.

Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received. You don't include in income the part of the payment that's a return of your basis in the property. Use Form 6252, Installment Sale Income, to report an installment sale in the year the sale occurs and for each year you receive an installment payment.

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