S-Corp Asset Sale

S-Corporation operating as liquor store sold all assets for $3.2 million. Very little basis in any of the assets other aobut $800K of inventory. Sale was structured as an asset sale unfortunately. Currently grasping for straws on ways to reduce tax burden. Any suggestions? Sale occurred in 2021.

Installment sale?

Sorry. Just added that the sale occured in 2021.

Are we supposed to feel sorry? Retro huge accounting fee?

Tell him to smile, he made a crap load.

Yeah. My thoughts exactly.

Allocation of price.

I tell my business clients to be happy with LTCG. Once you have taken the available business deductions and capitalized selling expenses, it's time to move on.

I tell my business clients to be happy with LTCG.

AND its not subject to NIIT if they're nonpassive, so there's that as well.... People want to make millions and pay $5 in taxes.

You have ignored Nilo's question. I would be striving to get as much in the Goodwill bucket as possible.

The sales price needs to be allocated between the assets sold. Let's just for jokes say the inventory was $800,000 (should have no tax consequence) and the rest is Goodwill and equipment. $200,000 to the non-Goodwill assets and $2,200,000 in Goodwill.

Identify the tangible assets, the rest to Goodwill and non-compete. Get a bucket full of reasons why the non-compete (ordinary income) is of little consequences. Age, never going back to the industry, health, etc.

I've researched and done CPE on asset sales. In the real world, how does most of these allocations go? How do you justify/support goodwill vs the other categories?

Non compete comes in as ordinary income? I guess because that is an on going thing and technically you're still "earning" that money?

Wasn't there an allocation in the sale agreement? The buyer is going to want as much as possible to inventory, equipment, non-compete and as little as possible to goodwill. Both seller and buyer will need to file Form 8594 and the allocations should agree.

In the real world, ideally the asset allocation is worked out during the sale process and the 8594 is part of the closing documents.

Goodwill is what is left over. You don't have to justify it. Maybe he's got 50k in fixtures, 25k in cooler, and the inventory. Whatever is left is Goodwill by defnition. And yes, there needs to be agreement. The buyer wants 1.5 mil in fixtures and cooler. For 8594? Something like that. Asset Allocation.

I agree with #9.

And #11 as to the form. I added the emphasis.

Here's part of the reg.

(4) Effect of agreement between parties. If, in connection with an applicable asset acquisition, the seller and purchaser agree in writing as to the allocation of any amount of consideration to, or as to the fair market value of, any of the assets, such agreement is binding on them to the extent provided in this paragraph (c)(4). Nothing in this paragraph (c)(4) restricts the Commissioner's authority to challenge the allocations or values arrived at in an allocation agreement. This paragraph (c)(4) does not apply if the parties are able to refute the allocation or valuation under the standards set forth in Commissioner v. Danielson, 378 F.2d 771 (3d Cir.), cert. denied, 389 U.S. 858 (1967) (a party wishing to challenge the tax consequences of an agreement as construed by the Commissioner must offer proof that, in an action between the parties to the agreement, would be admissible to alter that construction or show its unenforceability because of mistake, undue influence, fraud, duress, etc.).

So what about if the buyer and seller do not agree on the allocation? I'm pretty sure this happens, and may even be discussed in another thread on TPT. The very first word in the text is "If".

And here I thought that was required, even tho' most attorneys don't bother with it.

Two of our esteemed (former) members (Harry Boscoe and CKenefick) discuss the question here. viewtopic.php?f=8&t=2548&p=29744&hilit=section+1060#p29744

Will a Form 8594 purchase/sales price mismatch lead to the auto generation of a Notice?

The purchaser will include debt owed to the seller, but the seller won't, right?

The purchaser will include debt owed to the seller, but the seller won't, right?

Why not?

How to back out the debt received on the Form 4797, then?

Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received during your 2022 tax year from a sale made in an earlier year that you reported on the installment method. Enter any gain from the installment sale on Form 4797, line 4 or line 15, as applicable. See the instructions for Form 6252.