think this is income

Have a 3 person s-corp.

2 s/h want to leave.

Company has a negative net worth.

The 2 s/h who want to leave agree to pay the corp 20k each in order to depart as shareholders.

Don't think this is treasury stock bc the corp is not paying s/h for their stock.

Does that mean the 40k contributed is income to the corp?

Seems like it shouldn't be income - a contribution to a corporation by the controlling shareholders should be tax-free under Section 351. The departing shareholders will potentially free up suspended losses (I assume).

APIC?

cap contribution sound good - thank you - and that'll give them basis to take losses.