Sell the inventory and close or sell the stock?

You get so close to some situations that you can't see the forest anymore.

Long time client in an S corp with about 50k of basis, perhaps more, need to check that. Time to retire, wants to sell to two of his employees over 4-5 years.

What they've talked about so far is just buying the inventory from him at 50c on the $, which comes to about 50-60k. I'm thinking, hmmm, that's going to be ordinary income...and closing the corp is going to create capital losses....

Am I better suggesting he sells the corp stock so he has easy offset of sale price to basis?
Jeff

My first thought: Buying the inventory at 50c on the dollar would be an ordinary loss, not ordinary income.

Just curious - is the total equity on the books equal to the client's basis in the corp, or is one higher than the other?

If he sells the inventory...oh, I see what you mean. If we keep corp alive long enough to sell that...yep, he's got more loss.Duh. I'd just figured he'd have a 50k sale standing alone.

Neg equity on books, he's loaned in the add'l basis over the years. So it's loan basis.

No problem -- as you said yourself sometimes one can get too close to see the big picture. It happens to us all, and it's why forums like this are so important to solo practitioners.

I forgot about the possibility of loan basis -- whoops! Where I was thinking was if the basis was aligned with the balance sheet which can happen when there is one shareholder... in those cases, everything would zero out at the end, and anything but a zero at the end means there was an error somewhere.

Big picture though, he can't sell the business to his employees for half the value of the inventory. It's just a terrible deal for him, plus then you have to worry about it being compensation to the new owners.

Gracias. Yeah, I'm concerned about any compensation issues, but his alternative is to lock up and sell stuff on Ebay, and he wouldn't even get the 50c. It's electronics, so one way from vendors and dates quickly....