Sale of S-Corp Shares to Include Assets

[dawh]

I am working on the sale of a company with the following details:

$200,000 sales price to purchase 100% of shares of the S-Corp. The purchase agreement also includes an extensive list of assets included as part of the stock purchase agreement.

As this is not a typical asset sale, and the value of the assets seem to be included in the stock sale price, I am wondering how I am to dispose of the assets. Do I dispose of the assets as of the sale date at $0 (creating a section 1231 loss), and attribute 100% of the proceeds to the stock sale and attribute any funds received above and beyond basis as capital gains, or, do I report the sale of the assets at the assessed value, and attribute any amounts remaining of the sale amount in excess of basis as capital gains?

Thank you in advance.

[qbteachmt]

"and the value of the assets seem to be included in the stock sale price"

The business valuation has to be based on something, after all. But it seems they sold the Assets outside of the S Corp, and then also sold the empty S Corp shares to the same person?

Do you think they simply did all of this with bad guidance?

[dawh]

It would seem so. I would have suggested a simple asset sale if I were included in the process.

The exact verbiage of the sale is:

"1. Stock Sale

     A. Seller is selling to Buyer and Buyer is buying from Seller 100% of the issued and
outstanding stock of X, Inc. located at X.
B. X hereby sells 100% of his stock, which is comprised of 15,000 shares.
C. X hereby sells 100% of his stock, which is comprised of 15,000 shares.

2. Assets of Company

The Company contains the following assets, which all such are transferred to Buyer with the stock purchase:
A. The goodwill of the Company, including the business logo, and phone number.
B. The inventory of goods.
D. The furniture, fixtures, vehicles, and equipment listed in Attachment A.
E. Intellectual property rights as follows: business name and customer lists."

[sjrcpa · Accepted solution]

Based on that, you don't dispose of the assets. This is a stock sale. 

Is the buyer a corporation? If so, the S election terminates on the day of sale and you prepare a short year 1120S. End of story.

Or, is this a stock sale treated as an asset sale  - 338(h)(10) election?

[dawh]

Thank you!

[sjrcpa]

You're welcome