Business sold in installment sale but business name and EIN stayed the same

[Jane918]

If a business was sold in an installment sale, but the business name and EIN stayed the same, how do you report that installment sale on the 6252? I understand that the names will change on the K-1's and the profit/loss goes to the new owners for the whole year, but I'm not sure how to proceed with the 6252.

[George4Tacks]

What type of entity?

K-1s? What flavor? 1120S, 1041, 1065????

Did an individual do the sale?

[Jane918]

S Corporation (1120S)

It was an S Corp before. Nothing changed with the entity. It was all transferred. The business name and the EIN stayed the same. It was just a change in ownership, but the new owners are paying for the business on an installment sale basis.

[Terry53029]

 The tax basis of the S corporation's underlying assets and the S corporation's tax accounting methods are not affected by the stock transfer — asset basis and accounting methods carry over to the new ownership. On form 6252 you report the type of property as a capital asset then follow instruction for rest of form. Profit will be reported on schedule D (capital gain). It has been my experience that all of the S-Corp sales have been asset only sale, because no one wants to be liable for the S-Corp being sold. Are you sure it is a stock only sale.

[Jane918]

It's a bar/tavern with gaming. The building and contents are all included. The name and EIN needed to stay the same due to gaming issues

[George4Tacks]

S-Corp is a Corporation. Corporations are owned by individuals that hold stock. Was the stock transferred? Was stock ever issued? I truly hate S-Corps because they were likely setup by the bartender at the beginning. 

[Jane918]

Yes, the stock was transferred. It was all originally set up by a lawyer and the transfer took place involving the same lawyer. 

[Jane918]

Ok, I think I was reading way too much into this...so it would be considered a stock only sale. Thank you all!

[BobKamman]

The sale is reported on the returns of the sellers.  Nothing is reported on the 1120-S -- as you note, just the names on the K-1s will change, dividing profits between former owners and new owners according to period of ownership.  

[Jane918]

Ok, so that leads me to another question. Through my research, I read that the new owners would take over the profits/losses for the entire year, which doesn't seem fair, but that's the way it reads. (From what I read, but I may need to do more research on this) So, if this isn't the case, where do I put the dates for the partial year so that all of the K-1's come over correctly? 

[BobKamman]

And where did you read that?  Maybe some AI-created summary?

"§ 1.1377-1 Pro rata share.

(a) Computation of pro rata shares—(1) In general. For purposes of subchapter S of chapter 1 of the Internal Revenue Code and this section, each shareholder's pro rata share of any S corporation item described in section 1366(a) for any taxable year is the sum of the amounts determined with respect to the shareholder by assigning an equal portion of the item to each day of the S corporation's taxable year, and then dividing that portion pro rata among the shares outstanding on that day. See paragraph (b) of this section for rules pertaining to the computation of each shareholder's pro rata share when an election is made under section 1377(a)(2) to treat the taxable year of an S corporation as if it consisted of two taxable years in the case of a termination of a shareholder's entire interest in the corporation."

[George4Tacks]

@Jane918 One more question. Can the taxpayer take advantage of selling their Small Business Stock and maybe get some exclusion? 

This business (art) is so full of what ifs and maybes. I can be very challenging, but fun if it done with the right attitude. 

[Jane918]

@BobKamman Thank you!

[qbteachmt]

I have been tagged with researching and documenting this sort of thing. You'll want to confirm if the entity ownership change included the "YTD" status in the sale (price, conditions) consideration. There might not be a pro rata situation. The installment sale is the payment method, not the details of the sale.

[Jane918]

I think I finally figured it out, after all of your help and more research. I needed to locate the Ownership % Worksheet within ProSeries. That did the trick. Now I have the 3 K-1's. For the 6252, I reported the gross selling price, the cost basis and the depreciation allowed to get the gross profit, and then entered the total principal payment that was received during 2024. The Ownership % Worksheet was what I was searching for. Thank you to everyone for your input.

[qbteachmt]

While % ownership matters for prorata, this item: "and then entered the total principal payment that was received during 2024"

Are you trying to show the S Corp entity bought itself?

Because what typically happens is, one or more shareholders sell their holding of the entity to another human or trust or corporation or entity.

[sjrcpa]

@Jane918 And that 6252 is part of  the owner(s) 1040 and not the 1120S.