Valuing contingent consideration in corp liquidation

Technical topics regarding tax preparation.
#1
DAJCPA  
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I have a similar issue as discussed here:
https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=10492&p=113171&hilit=liquidation+contingent#p113171

Client S-Corp does an asset sale via sale of an a single member LLC owned 100% by the S-Corp 7/31/19. The shareholders have 330K of outside basis that needs recovered in the year of sale to offset the gain on the asset sale. The gain on the sale is about 700K. However there are two contingent payments: 1) an 100K contingent payment based on an 12 month earnings goal (the "earnout") to be paid, if earned, in Aug 2020 and 2) an escrow holdback to be paid, if no issues arise, in Jan 2021. Total sales price is 1,100,000 with 900K paid in year of sale and the 200K subject to the earnout and the escrow. The plan was to liquidate the corp on or before 12/31/19 so as to be able to use the additional outside stock basis against the asset sale gain. However, I am unsure how to value the earnout and escrow for purposes of the corp liquidation. As an additional note, 453(h) and 453B(h) don't apply to the distribution of the contingent amounts due to their being an overall loss on the liquidation, plus the plan to liquidate was not adopted until after the sale.

How does one value the earnout and escrow at the date of liquidation?
Last edited by DAJCPA on 18-Feb-2020 3:16pm, edited 1 time in total.
 

#2
DAJCPA  
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For purposes of the liquidation, is it legitimate to wait until Aug 2020 determine the 12/31/19 value of the earnout?
 

#3
sjrcpa  
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Sure. It will eliminate doubt. File an extension.
 

#4
deniz  
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https://www.cpajournal.com/2018/08/22/t ... -guidance/

If 453 does not apply, just do a probability-weighted DCF.
 

#5
DAJCPA  
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Thank you for the input and the link to the valuation article. I appreciate it.
 


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