Hello all, I truly hope all is well and you survived the first part of the tax season!
I inherited a new client, Fiscal Year C Corp, my favorite! They are selling their business in an asset sale. Most of the sales price will be allocated to fully depreciated assets, the remainder to Goodwill. I have two questions.
I am thinking we should indicate in the sales agreement the company will be selling the equipment, and the owners/individuals will be selling the Goodwill. This is merely an attempt to avoid taxation on liquidating distributions and 21% tax at the C Corp level versus the single layer of 15% tax at the individual level. Doable/Common approach? Martin Ice Cream case, perhaps?
There are $250K in "loans to shareholders" on the books, my assumption, the prior accountant was trying to avoid tax on what truly were dividends to the shareholders, but I can't read minds. Let's say the sale produces $250K in cash; can we simply "write off" the loans to shareholders by labeling this a forgiveness of debt to the shareholders, or would we be shooting ourselves in the foot here? I am trying to avoid triple layer of tax; tax on the gain of sale of assets to the C Corp, tax to the shareholders for the liquidating distributions, and tax to the shareholder for forgiveness of debt. Argh!
Any guidance would be most appreciated!