S Corporation Stock Sales: Mastering Tax Reporting, Income/Loss Allocation and Section 1377 Elections

Utilizing "Close-the-Book" Strategies, Determining Year-End Basis Adjustments, Preparing Form 1120-S

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, February 15, 2017

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers with a comprehensive and practical guide to reporting sales of S Corporation stock in non-liquidating transactions. The panel will discuss income and loss allocation in cases of a mid-year sale, describe available elections and consent requirements for shareholders, detail when an S Corp can or must close its books under the guidance found in Section 1368, and review the treatment of accrual-basis S corporations involved in stock sales.

Description

When an S corporation stockholder sells an entire interest in an S corporation’s stock, the transaction can present significant tax reporting challenges and often undesirable tax results. S corp tax advisers need to know the various elections and provisions to mitigate the impact of income/loss allocations in the year a shareholder sells his interest in a transaction that does not liquidate the corporation.

The general S corporation rules require that income or loss must be allocated on a per-share/per-day basis among all shareholders. However, this can create inequitable tax results, particularly when the exiting shareholder sells the interest to existing shareholders.

Section 1377 provides election options to remedy potential tax issues arising from a shareholder’s sale of his interests. An S corporation may, with the consent of all shareholders, elect to “close the books” as of the date of the sale transaction for purposes of allocating income or loss to an exiting shareholder to avoid negative tax consequences.

This closing of the books election requires specific allocation and reporting calculations, and often involves year-end basis allocations to the purchasing shareholder. A thorough understanding of the Section 1377 election rules will enable tax advisers to S corporations and their shareholders to help avoid costly tax consequences.

Listen as our experienced panel provides a practical guide to the election and allocation tax challenges of reporting a shareholder’s sale of S corporation interests.

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Outline

  1. General rules for income allocation on sale of S corporation stock
  2. “Closing of the Books” election under Section 1377
  3. Tax reporting after a Section 1377 election
  4. Year-end basis adjustments in the year an S corporation shareholder sells stock

Benefits

The panel will discuss these and other important topics:

  • What are the specific income/loss allocation issues that apply when an S Corporation shareholder sells his entire interest to other current shareholders?
  • What are the mechanics of making a “closing of the books” election under Section 1377?
  • Filing a Form 1120-S Tax Return after the S corporation has made a Section 1377 election
  • What basis adjustments must the S corporation make to shareholders at year-end after a Section 1377 closed taxable year election?

Faculty

Lovett, Brian
Brian T. Lovett, CPA, JD

Partner
WithumSmith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

Robert W. Jamison, CPA
Robert W. Jamison, CPA
Professor Emeritus of Accounting
Indiana University, Kelley School of Business

Mr. Jamison is Professor Emeritus of Accounting at Indiana University, Purdue University, Indianapolis (IUPUI). His...  |  Read More

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