"It was an asset purchase only. According to their sales agreeement, everything was allocated to Goodwill of $500k"

Maybe it helps to think of it like this: Unless he owned that, he didn't sell it.

I can't sell you Ford's assets, just because I hold Ford shares of stock. That's what he owned: shares of stock in that S Corp. The S Corp owned and operated the business. That's why he also was an employee on payroll to that entity.

So, either the entity disposed of everything to him first (and he made a personal sale), or the entity sold off everything of value, settled its debts, etc, and no longer operates as that company. And he still owns shares, since the buyer did not buy the shares, the EIN, the entity. He has ownership of an empty corporation. Is he shutting that down, too, and needs to file not only an 1120S, but the final 1120S?

And what tax year did that sale occur?