S Corp Redemption

I have a client who terminated the other S Corp shareholder/Vice President of his business in late 2016 due to multiple business relationship/money issues. While the shareholders agreement provided a purchase price/structure for purchasing the terminated shareholders shares, the last few years were spent in lawsuits over that and multiple other issues. In 2018, the two came to a settlement agreement that includes multiple payments to be made to the former shareholder in full and final settlement of all monetary claims between the parties. The first payment was made in 2018 and the final payments will be made in the next few years. The settlement also included language of acknowledgement from the former shareholder that the payments would represent full and adequate compensation to him for his shares, and no additional payments would be sought. In the meantime, 2016 was the last year both shareholders received a K-1 and 2017 was filed with just my client as the 100% shareholder of the S Corp.
I've seen several posts with similar topics, but my initial question is whether these payments would require any 1099 and/or K-1 reporting from my client? Or, is it up to the former shareholder to report this income? I don't know that there is any benefit my client can receive from these payments from a tax perspective, but any thoughts there would be appreciated as well.

While your title refers to "redemption", it's the only clue. What individual or entity purchased the shares? How come 2017 showed one K-1 when they settled in 2018? Is interest being charged? Were there parts of whatever year (2016, 17, 18) when there were 2 owners for some period and then only one? Is there simply a purchase or redemption or is there also, perhaps, a non-compete, back pay, damages. etc.? Was the corp. always an S corp.?

Year 2016 was the final year in which there were two shareholders, and they used the closing of the books method to allocate income in that year. After terminating the other shareholder in 2016, the one remaining shareholder became the 100% shareholder and the share purchase price was to be structured over a multi-year period as outlined in the shareholders agreement. However, as more came to light in terms of undocumented business and unaccounted for money, lawsuits/countersuits were filed and payments were delayed. The remaining shareholder is identified as the 100% shareholder in the settlement agreement, and the terminated shareholder is identified as a former shareholder as of that 2016 date, so there doesn't seem to be much dispute on the matter of when the business went from 2 to 1 shareholder.While the settlement mentions the payments to be made in 2018 and 2019 are in full settlement of all monetary claims and also represent full and adequate compensation for the shares with no further/additional payments to be made, the payments also come with other requirements that the former shareholder not use the company trademarks, not interfere with the business, etc, so it does go beyond a simple purchase/redemption in my mind, anyhow. Obviously, the terminated shareholder would like the payment to be structured as solely being compensation for shares, so it can be a capital gain to the extent one exists (which it should, as the former shareholder tax basis should be close to nothing). So, my uncertainty exists regarding:
1. Is this just a purchase/redemption of shares? If so, how is reporting of the 2018 and 2019 payments handled since the other shareholder was terminated in 2016 and should not receive K-1's beyond that time?
2. If this is not purely a shareholder redemption, can the payments (or at least a portion) be considered deductible expenses for my client as they were necessary to protect the business trademarks, domain, name, etc.?

Those are good questions, but you still have not answered whether it was a redemption by the S corp. (but you strongly imply that it is) or a purchase by the other shareholder. But either way, the assignment/allocation of the price to other than the stock will be difficult. Some of the TPT embers are no doubt more experienced in this than I. Maybe there are some cases etc directly on point.

I assume it would be harder to get a tax benefit other than stock basis if the purchaser is the other shareholder rather than the corp.

Take a look at section 1060(e) and the related regs. It seems to apply. And per 1060(f), so does the potential 6721 penalty.

As to your question 1, I think you should be ok in that no purchase price had been agreed in 2016-17, so 2018 is the first reporting required (of income), presumably on the installment method unless there was an election out. See the law at 453(f)(8) for how to calculate payments where the amounts are contingent, and see 453(j)(2) for what to do where the payments are not "readily ascertainable". You'll need to read some regs. And offhand I'm not sure what, if anything, is required to report the elimination of an S shareholder, since the S election has not been terminated.

As to your question 2, I like your thinking, but it's very fact-dependent, and as I said above, others probably have more experience in this than I do.

Yes, it was a redemption by the S Corp. Appreciate your insight as this is new territory for me. I'll do some further looking into the regs you mention, too.

In post #4 I meant also to mention section 483, which requires impuation of interest on deferred payments such as this one unless adequate interest is stated.

But my real purpose in bumping this is to hope someone can point us to cases or other authorities in which a stock purchase or redemption agreement did not delineate an allocation to assets other than the stock itself, yet such an allocation was allowed. MTS needs some help here and busy season is on 6-month hold.