C Corp Sale

Technical topics regarding tax preparation.
#1
MTS  
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I have a client who purchased 100% of the shares of an existing C Corp roughly 15 years ago and has now been made an offer from an outside party to sell the business, which would result in a significant loss. If it’s structured as a stock sale, I’m thinking the tax impact would be a LTCL on Schedule D for the taxpayer, with a carryforward of excess LTCL.
To put some figures to it, the shareholder purchased the business for roughly $350,000 and will sell it for $200,000, resulting in a LTCL of roughly $150,000. The current year tax impact would be a LTCL of $3,000, with the remaining $147,000 carried forward (unless the taxpayer can use any of the loss to offset capital gains). The corporate earnings and profits are minimal (maybe $10,000), but I assume those just move along to the buyer and wouldn’t have any tax impact to the selling shareholder.
So, a few questions:
• Am I accounting for things correctly here, or am I missing anything/oversimplifying this? With a small amount of existing corporate earnings and profits, would a 100% shareholder typically take a dividend payment for those accumulated earnings and profits prior to selling their shares or is that just factored into the sales price?
• Are there better ways to structure the sale to take advantage of the seller’s loss?
 

#2
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The initial post cutoff one important final sentence regarding alternative ways to structure the sale:
In particular, could this be treated as an ordinary loss on the sale of Section 1244 stock, with the maximum of $100,000 since the taxpayer is MFJ?
 

#3
Nilodop  
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When you say "purchased" the stock, do you mean from the corporation, as in a 351, or from an owner? If the latter, no 1244 treatment.
 

#4
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I need to confirm with the taxpayer - my initial thought is that it was purchased from the owner, so it sounds like that would limit the loss to capital and nothing classified as ordinary.
 

#5
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Regardless of whether the stock was purchased from the corporation or the prior owner, I just read an article on the tax adviser site that seems to suggest the buyer of the stock may not be entitled to Section 1244 treatment since they are not the original owner. Granted, the article is a little dated (https://www.thetaxadviser.com/issues/20 ... stock.html). If instead they had setup a new corporation when they purchased the company and issued new stock, than they could possibly qualify. That could simplify the answer.
 

#6
Nilodop  
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That was my point in #3. If it was a 351, that means they bought controlling stock from the corporation, and typically in your OP facts, it means a new corporation that in turn bought the assets of the business.

In any case, you need to have the exact facts.
 


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