Sale of Business

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    Sale of Business

    Single member limited liability company with proper election to be taxed as a C-Corporation is selling 100% of the business to an unrelated party.  The buyer and seller intend for the transaction to be a sale of the membership interest.

    How is the sale of the business treated for federal tax purposes?

    Thanks in advance.

     
  2. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Sale of Business

    In response to rvd71's comment:
    [QUOTE]

    Single member limited liability company with proper election to be taxed as a C-Corporation is selling 100% of the business to an unrelated party.  The buyer and seller intend for the transaction to be a sale of the membership interest.

    How is the sale of the business treated for federal tax purposes?

    Thanks in advance.

    Dear rvd71:

    Since an electioin was made to tax the SMLLC as a C Corporation, the units owned in it are treated as the "stock" of the corporation.  The sale of those units, representing the ownership interests in the corporation, produce a capital gain, just as the sale of actual stock in a corporation would.  The acquirer will hold the stock of a C corporation and will not adjust the basis of the assets held by the corporation, unless s/he liquidates the corporation, in which case, gain or loss will be recognized by the corporation on its liquidation.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
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    Re: Sale of Business

    Thank you.  Should the buyer obtain a new Employer Identification Number?  What about the current year corporate tax return.  Are separate returns filed for the seller's period of ownership and the buyer's period of ownership?

     
  4. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Sale of Business

    In response to rvd71's comment:

    Thank you.  Should the buyer obtain a new Employer Identification Number?  What about the current year corporate tax return.  Are separate returns filed for the seller's period of ownership and the buyer's period of ownership?

    Dear rvd71:

    Since this is treated as a sale of stock of a C corporation, the corporation remains undisturbed by the sale.  It retains its EIN and, unless the buyer is a corporation that files (or chooses to file) a consolidated return, the tax year remains the same and is uninterrupted by the transaction between the current and new shareholders.

    Hope this helps in preparing your reurns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
  5. You have chosen to ignore posts from rvd71. Show rvd71's posts

    Re: Sale of Business

    In response to MASocietyofCPAs's comment:
    [QUOTE]

    In response to rvd71's comment:

    Thank you.  Should the buyer obtain a new Employer Identification Number?  What about the current year corporate tax return.  Are separate returns filed for the seller's period of ownership and the buyer's period of ownership?

    Dear rvd71:

    Since this is treated as a sale of stock of a C corporation, the corporation remains undisturbed by the sale.  It retains its EIN and, unless the buyer is a corporation that files (or chooses to file) a consolidated return, the tax year remains the same and is uninterrupted by the transaction between the current and new shareholders.

    Hope this helps in preparing your reurns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.


     

    Could the seller (SMLLC taxed as C-Corp) meet the requirements for qualified small business stock, Sect. 1202 exclusion of 50% of gain?

     
  6. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Sale of Business

    In response to rvd71's comment:

    In response to MASocietyofCPAs's comment:

    In response to rvd71's comment:

    Thank you.  Should the buyer obtain a new Employer Identification Number?  What about the current year corporate tax return.  Are separate returns filed for the seller's period of ownership and the buyer's period of ownership?

    Dear rvd71:

    Since this is treated as a sale of stock of a C corporation, the corporation remains undisturbed by the sale.  It retains its EIN and, unless the buyer is a corporation that files (or chooses to file) a consolidated return, the tax year remains the same and is uninterrupted by the transaction between the current and new shareholders.

    Hope this helps in preparing your reurns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

    Could the seller (SMLLC taxed as C-Corp) meet the requirements for qualified small business stock, Sect. 1202 exclusion of 50% of gain?

    Dear rvd71:

    If the seller is willing to assume the possibility of litigation with the IRS over the treatment, s/he could claim the benefits of Section 1202.  The statute specifically talks in terms of the issuance of stock for the investment in the corporation and no stock was issued in your example - the SMLLC merely made an election to be treated as a corporation.  A judge may (or may not) decide that the issuance of actual stock certificates is a moot point in the cricumstances (or may hold the taxpayer seeking the benefits of Section 1202 treatment to the strict interpretation that actual stock be issued in order to conform to the strictures of the statute).

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
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