Tax Complexities in the Sales and Purchases of S Corps: Asset vs. Stock Sales, Installment Sales, Critical Elections

Purchasers generally prefer buying a business' assets. This allows the acquirer to depreciate the newly acquired assets at fair market value and often write off a significant portion of the purchase price using bonus depreciation or Section 179 deductions. Sellers, on the other hand, prefer selling their stock. These gains often qualify for capital gains rates and, for eligible S corporations, may qualify for installment sale treatment. Even sales that are legally treated as stock sales could be treated as asset sales for tax purposes if an election under 338(g) or 338(h)(10) is properly made.

For S corporations that were previously C corporations, sellers must consider the tax effect of built-in gains. Even though S corporations are used to avoid two layers of tax, distributing appreciated assets and assets that have depreciated have significant tax consequences. Tax practitioners working with Subchapter S corporations need to understand the options available to shareholders purchasing and disposing of these flow-through entities.

Listen as our panel of flow-through entity experts examines specific scenarios regarding purchases and sales of S corporations and provides explanations of the tax consequences of each.

1. S corporations
   1. Asset purchases and sales
   2. Stock purchases and sales
   3. Installment sales
   4. Built-in gains
   5. Elections
      1. Section 338(g) and 338(h)(10)
      2. Section 336(e)
   6. The Type F reorganization
      1. Converting S corporation to QSub
      2. Converting QSub to SMLLC

The panel will cover these and other critical issues:

• Avoiding built-in gains tax on sales
• When an election under 338(h)(10) would result in significant tax savings
• Which S corporation sales are eligible for installment sale treatment
• How shareholders are taxed on dispositions

Learning Objectives

After completing this course, you will be able to:

• Identify related party issues with installment sales of S corporations
• Determine when an S corporation's sale is eligible for installment sale treatment
• Decide whether purchasing assets or stock would be most beneficial to the purchaser
• Ascertain situations where making an election under 338(h)(10) would result in substantial tax savings

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).