C-Corp Sale - Help with transaction please

Technical topics regarding tax preparation.
#1
Wiles  
Posts:
5058
Joined:
21-Apr-2014 9:42am
Location:
CA
I am representing the seller on a $1.3 million transaction. The deal is currently written up as a stock sale. All parties are now thinking about converting this to an asset sale. I am thinking leave it as a stock sale and do a 338(h)(10) election.

Seller - CA C-Corporation:
* C-Corp tax basis in net assets $650K
* NOL carryover $800K
* Formed 1996 - qualifies for 50% QSBS exclusion

The buyer has recently stated that they want to operate as an LLC taxed as a partnership. This is why the conversion to an asset sale is now being considered.

The Seller's NOL carryover can be utilized on the asset sale giving the Buyer LLC full basis in the purchased assets. In fact, this is the only way that this C-Corp NOL can be used. It would disappear in a stock sale due to the change of ownership.

Questions:
1. Do you see any land mines?
2. They prefer to keep the stock sale documents in place and do the 338(h)(10) election rather than re-draft everything as an asset sale. Any problems there?
3. The broker for the seller (a former CPA) is concerned that they will lose the 50% QSBS exclusion if this converts to an asset sale. I don't see that. They can still utilize this exclusion on the corporate liquidation. Correct?
 

#2
Posts:
2657
Joined:
28-Apr-2021 7:00am
Location:
FL
1. No. The buyer is exposed to corporate liabilities, but you represent the seller.
2. No.
3. Yes.
Steve
 

#3
Wiles  
Posts:
5058
Joined:
21-Apr-2014 9:42am
Location:
CA
Thank you
 

#4
Wiles  
Posts:
5058
Joined:
21-Apr-2014 9:42am
Location:
CA
Is there any reason for the current C-Corp to do an F reorganization prior to the transaction? Drop down all non-excluded assets & liabilities into a SMLLC and sell the LLC.
 

#5
Posts:
2657
Joined:
28-Apr-2021 7:00am
Location:
FL
I see none. And it's contrary to the negotiated deal.
Steve
 


Return to Taxation



Who is online

Users browsing this forum: AlexCPA, Google [Bot], Google Adsense [Bot] and 123 guests