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s corp client purchased 80% of another s corp; they both wish to treat the purchase/sale as an asset acquisition via a 338h election which is yet to be filed (9 months from sale)
a) where & how do I enter the asset acquisition, which qualifies for depreciation, in proseries? currently, there is form 8954 but that says it is an asset acquisition statement so not sure that is accurate. Am I approaching this incorrectly?
b) under the asset acquisition election, the 20% entity will cease to exist for federal tax purposes other than payroll; thus, I need to include their post purchase info in the s corp client/buyer tax return, correct? Then the 20% owners will get a k-1 from the s corp tax return, correct?
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a) You enter the assets like you would any other assets that are purchased. There should be a list with assigned FMVs.
If only 80% of the assets of the other S corp are being sold, why would it cease to exist after this transaction?
The more I know the more I don’t know.
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"If only 80% of the assets of the other S corp are being sold, why would it cease to exist after this transaction?"
I've been pondering the issue of only owning 80% of assets, such as a partial amount of a forktruck? What happens to the other 20% of that forktruck, then?
Don't yell at us; we're volunteers
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Thank you for your reply. When both buyer & seller are s corps, they both need to make the 338h election to treat the purchase/sale of the now subsidiary s corp as an asset purchase vs a stock purchase thereby the parent maintains their s corp status. i have learned that both entities would file the 8023 election w/IRS then the parent would complete Form 8594. The seller will file a final 1120s as of the purchase date. As the purchaser acquired 80% of the seller, the seller ceases to exist for federal income tax purposes only as they will be consolidated with the parent. The buyer & seller businesses will remain in operation as their own "silos" except for financial statement and taxes reporting. The seller did not have much assets, only cash; I understand the election to be stating that the 80% of the seller is the asset and their is indeed a calculation to be determined for both purchaser & seller; however, I am not sure which is my question. I am deferring back to the purchase/sale attorney's team for additional guidance.
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I hadn't heard of a 338(h) election because I don't generally deal with M&A clients. A starting point is here, but it does not explain what happens to the 20% lagniappe:
https://www.rklcpa.com/338h10-transaction-structure-pros-cons-sellers-buyers/
Maybe because it's obvious that if you only sell 80% of something, you still own 20% of something, and both IRS and FinCen will want to keep in touch.
Don't be afraid to tell your client, "you got yourself into this mess, find someone else to help you get out of it."
