4 Credits: Taxes
This program uses a case study to illustrate the purchase and sale of an S corporation. There are two parts. The first compares the sale of all of the assets and the sale of all of the stock. Both the target corporation and the purchaser are S corporations. Each of the two corporations has two 50/50 shareholders. The target corporation is a simple business, but it is a going concern. Therefore the residual method of Code Section 1060 governs the allocation of the price for both the purchase and the seller if the deal is an asset sale.
Part 1 covers the asset exchange and the stock deal with no special elections.
Most of the coverage of the asset deal focuses on the seller. There are assets that produce different types of gains, including built-in gains taxable to the corporation, and ordinary income and capital gains taxable to the shareholders. An installment receivable from the purchaser is a major portion of the sale price, and this adds several complications for the target corporation and its shareholders.
The target has accumulated earnings and profits from C corporation years, and the terms of the asset sale create passive investment income problems. To deal with these the case study analyzes the AAA bypass election, and computes the effects of a complete liquidation on both the corporation and its shareholders. The special S corporation rules and liquidation distribution rules are important aspects of the asset sale.
Part 1 concludes with the alternative approach of a stock purchase/sale with no Section 338(h)(10) or Section 336(e) election. It suggests a discount based on the difference in tax benefits between the asset purchase and the stock purchase. In both alternatives there is also discussion of a covenant not to compete purchased from one of the selling shareholders.
Part 2 deals with variations on the stock deal. It includes the Section 338(h)(10) and Section 336(e) elections. It also covers converting the target corporation to a Qualified Subchapter S Subsidiary via the popular Type F reorganization strategy.
Upon completion of this course, participants will be able to:
- Comprehend the basic rules of asset and stock sale/purchase transactions;
- Understand the residual method for allocating consideration in an asset transfer;
- Contrast the basis to the purchaser of the assets acquired in an asset deal and a stock deal;
- Calculate the effects of an installment sale on the timing of gain recognized by the corporation and the selling shareholders;
- Determine the treatment of a covenant not to compete, on the purchaser and the seller;
- Calculate the effects of a AAA bypass election and a complete liquidation of the target corporation;
- Understand the implications of the Section 338(h)(10) election, the Section 336(e) election and the Type F reorganization;
- Prepare forms for the Section 338(h)(10) and Qualified Subchapter S Subsidiary elections;
- Calculate the effects of these options on the purchasers and sellers of an S corporation; and
- Comprehend the due diligence concerns for the purchaser of S corporation stock.
July 24, 2023
Experience with S Corporations
IRS Provider Number: 0MYXB
IRS Course Number: 0MYXB-T-02358-23-O
IRS Federal Tax Law Credits: 4
CTEC Course Number: 2071-CE-1923
CTEC Federal Tax Law Credits: 4
CFP Notice: Not all courses that qualify for CFP® credit are registered by Western CPE. If a course does not have a CFP registration number in the compliance section, the continuing education will need to be individually reported with the CFP Board. For more information on the reporting process, required documentation, processing fee, etc., contact the CFP Board. CFP Professionals must take each course in it’s entirety, the CFP Board DOES NOT accept partial credits for courses.
CTEC Notice: California Tax Education Council DOES NOT allow partial credit, course must be taken in entirety. Western CPE has been approved by the California Tax Education Council to offer continuing education courses that count as credit towards the annual “continuing education” requirement imposed by the State of California for CTEC Registered Tax Preparers. A listing of additional requirements to register as a tax preparer may be obtained by contacting CTEC at P.O. Box 2890, Sacramento, CA, 95812-2890, by phone toll-free at (877) 850-2832, or on the Internet at www.ctec.org.
Meet The Experts
Robert “Bob” W. Jamison, CPA, Ph.D., is Professor Emeritus of Accounting at Indiana University, Purdue University, Indianapolis (IUPUI). His principal area of specialization is S Corporations. He is the sole author of S Corporation Taxation, and co-author of Multistate Tax Guide to Pass-Through Entities, both of which are published annually by CCH, a Wolters Kluwer business. He is the author of the 2022 edition of Essentials of Federal Income Taxation, published annually by CCH, a Wolters Kluwer business. Bob is a well-known author and speaker on S Corporations. He is curator of Wolters Kluwer Answerconnect Topic “S Corporations” and subtopics …