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Which form do I complete - purchased all shares of S corporation

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PastaPrimavera

Junior Member
What is the name of your state? California

Hello. I purchased all of the shares of a former 50% shareholder in an S Corporation (previously we were both 50% shareholders). Payment was by check. What form do I complete and send to the IRS to disclose the purchase and the amount that I paid the other shareholder? The only thing I found was 1099B - but that says it is for broker and barter exchange transactions. Thank you!
 


Taxing Matters

Overtaxed Member
What is the name of your state? California

Hello. I purchased all of the shares of a former 50% shareholder in an S Corporation (previously we were both 50% shareholders). Payment was by check. What form do I complete and send to the IRS to disclose the purchase and the amount that I paid the other shareholder? The only thing I found was 1099B - but that says it is for broker and barter exchange transactions. Thank you!
You are correct that it is not 1099B. What you will do is report this on the Form 1120-S that you need to file by March 15 to report the income of the S-corporation to the IRS. If you are not familiar with preparing this form I encourage you to contact a tax professional who is experienced in S-corporations for assistance.
 

PastaPrimavera

Junior Member
Thank you for your reply! I believe we have been filing the 1120-S every year for the S Corporation (a tax person completes this for us). I was told that this year, since both shareholders were not owners for the full year (I purchased shares in July) we would need to file a "prorated" form 1120-S. However, is it on form 1120-S that I would separately disclose the cash payment to the other shareholder for his shares?
 

LdiJ

Senior Member
Thank you for your reply! I believe we have been filing the 1120-S every year for the S Corporation (a tax person completes this for us). I was told that this year, since both shareholders were not owners for the full year (I purchased shares in July) we would need to file a "prorated" form 1120-S. However, is it on form 1120-S that I would separately disclose the cash payment to the other shareholder for his shares?
Your tax pro will know exactly what to do. However yes, the ownership information is on the 1120S.
 

LdiJ

Senior Member
Our "tax pro" seemed uncertain - that is why I am asking the super pro's on this forum. thanks!
That is because its likely that its not all that often that he deal with an S-corp where ownership has changed. If you only deal with that a few times a year or maybe not even every year, there is always some research that has to be done to refresh one's memory. Plus, with the new tax laws everybody is a little leery that some detail of something may have changed, so we are all doing a lot of research right now.

You won't really be reporting the cash amount paid for the shares, what you will really be reporting is the change of the ownership of the shares. You reported the shareholders and ownership of shares on the first return that you filed for the S-Corp, and you will report changes in probably the exact same manner.
 

PastaPrimavera

Junior Member
thank you. it seems that the 1120-S generates a K1 which is the income prorated to each shareholder - regardless of distributions. and this buy-out was not income, or a distribution from the corporation. It was a cash payment form me (an individual) to another individual for his shares. He presumably incurred a capital gain. I don't believe there is anything on the 1120-S that would inform the IRS that one shareholder received a large profit on his shares . I want to be sure that the shareholder getting the $ declares the $ and pays the taxes due.
 

LdiJ

Senior Member
thank you. it seems that the 1120-S generates a K1 which is the income prorated to each shareholder - regardless of distributions. and this buy-out was not income, or a distribution from the corporation. It was a cash payment form me (an individual) to another individual for his shares. He presumably incurred a capital gain. I don't believe there is anything on the 1120-S that would inform the IRS that one shareholder received a large profit on his shares . I want to be sure that the shareholder getting the $ declares the $ and pays the taxes due.
Well, that is a COMPLETELY different issue than what you originally led us to believe that you wanted information about. I would suggest that you consult a local attorney about that.
 

Taxing Matters

Overtaxed Member
I don't believe there is anything on the 1120-S that would inform the IRS that one shareholder received a large profit on his shares . I want to be sure that the shareholder getting the $ declares the $ and pays the taxes due.
The 1120-S forms will show the change in ownership of the shares from him having 50% to having 0% and the IRS will expect to see that reported on his return.
 

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