The sole shareholder of a C-Corporation died in January of 2018. His son inherited the stock. In May of 2018, a business valuation was performed. The business valuation shows a value of $900,000 for the company's stock. The Corporation operates a wrecker service.
Earlier this month, the new shareholder told me he is selling the business for $2,000,000. It is an asset sale which will result in a taxable gain of about $1.7 million.
We anticipate the shareholder will receive about $1.2 million in cash upon liquidation. This would be the cash sales proceeds of $2 million less corporate tax, sales tax, and corporate debt.
If my math is correct, the shareholder will have about a $300k capital gain personally upon distribution. $1.2 million of cash distributed in liquidation less the stock basis of $900k.
It seems the business valuation should have been closer to $2 million, rather than $900,000. The company has about $200k debt.
Is there any way we can use a value for the stock closer to the sales price of $2,000,000? Perhaps the sales price of $2,000,000 less the $200,000 of debt? Or are we stuck with this low business valuation?