I am hoping to get any guidance for this situation or at least a point in the right direction.

I have completed the change of ownership (2553, CT6) with the fed/state and have started to prepare the K-1 projections and I am trying to adjust the books and starting to run projections for a 2022 1120-S tax return with change of ownership involved during the tax year.

One of the shareholder’s in the S-corp has sold his 1/3 interest to the remaining 2 shareholders who also initially owned 1/3 interest. The remaining shareholders now own 50% each. This sale occurred in 2022.

In the contract, the exiting shareholder agrees to sell his ½ of his interest each to remaining shareholders and have no remaining interest. He's out. This contract involves a cash down payment of $187,500 (for each shareholder $375K total) and an additional 48 consecutive monthly installments to be made at $4,218.75 (for each shareholder $8,437.50 total).

I am a bit lost on what the tax implications on this change of ownership are.

- How should the sale itself of this be treated on the 2022 tax return for this S-corp? I do understand how to prepare the change of ownership forms & pro-rate between the shareholders for K-1 purposes.

- Is this just a basis adjustment? What is being impacted in regards to the basis and the tax return?

- Also what is the tax impact on the remaining 2 shareholders purchasing these shares?

I appreciate any feedback, guidance, or a point in the right direction in this matter. Thank you!