S Corp Asset Sale - Final Return and Shareholder return - Installment sale

[JamesTC]

I have a client that sold their S Corp as an Asset sale, with the seller financing the sale through cash up front and a Note for payment over the next 7 years. 

I want to do an installment sale and I show the 1120S with the 6252 and that coming through on the K-1 in Box 17N. 

My question is - do I just record another form 6252 on the 1040 and do the installment sale through the individual for 7 years? And then do nothing on the S Corp going forward because this will be the final return.

[Terry53029]

I believe you need to report each year the S-Corp receives a payment on the 1120S, and issue a K1 to shareholders. Each year use 6252, and 4797 then to the K1

[TaxGuyBill]

The S-corporation may have distributed the Installment Note to the shareholder, possibly upon liquidation of the corporation.  I'll include a link below that discusses of the scenarios.

https://www.thetaxadviser.com/issues/2014/sep/tax-clinic-06-sep-2014/

[JamesTC]

The Shareholder did receive a note. I read the link you sent and I am still confused. If the business recognizes the gain, won't that pass through on the K-1? Do I need a 6252 for the S corp if there is a note? Or do I only need the 6252 on the shareholders personal return?

[sjrcpa]

The S Corp reports the asset sale on the 1120S in the year of sale, including the 6252 as appropriate. Gain passes thru to shareholder on K-1, as does the deferred gain. If the note was distributed to the shareholder as part of the liquidation of the corporation, future receipts are reported on the shareholder's return using the gross profit percentage from the sale, as well as the interest income.

[JamesTC]

So I report the installment sale on the S Corp with the 6252 and that passes through on the K-1 to the owner and then I report the same installment sale on the shareholders personal return, with the 6252. Along with all future payments.

So even though there is a 6252 on the final return for the S corp - that's okay that nothing more is reported on the 1120S because it is a final return in 2025?

[IRonMaN]

Sounds about right.

[JamesTC]

Thank you everyone!