Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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Archive for February 11th, 2006

Transferring An S Corp

Posted by taxguru on February 11, 2006

Q:

Subject: Is an S corp transferable?
 
Tax Guru,
           Upon the sale or transfer of the business (assuming that it is an s corp. in the first place); do the new shareholders have to sign a new IRS 2553 or does it just remain in effect?
Thanks for the advice

A:

The original 2553 remains in effect until either formally revoked or if the corp fails to qualify for S status by violating one of the restrictions.

Assuming the new owners are not one of the ineligible types, and the total number of shareholders is still less than 100, the original S election will continue to be in effect.  The new owners will be obligated by the original 2553 even though they have not signed it.  This mean that they will have to include their pro-rated share of the corp’s income on their 1040s.

If the sale of stock is effective mid-year, how you allocate the income or loss to be reported on the K-1s is negotiable between the buyers (old shareholders) and sellers (new shareholders) and should be spelled out in the sale agreement so that there is no messy dispute when the 1120S is prepared.

I hope this helps.  A tax pro can help work with your particular situation.

Kerry Kerstetter

 

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No Residence Reinvestment Requirement

Posted by taxguru on February 11, 2006

Q:

Subject: RE: tax question
 

I have a question for you, if I have lived in my home less than 2 yrs and I sell it and take the money and put in to the new home will I pay capital gaines tax on that money. I am married

 

A:

You can see all of the residence sale rules here on my website.

You can see that what you do with the sale proceeds has no effect whatsoever on your possible tax obligation.

You should work with your own personal tax advisor to see if you qualify for the pro-rated tax free exclusion.

Good luck.

Kerry Kerstetter

 

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