Topic Thread

Family Member Buyout

  • 1.  Family Member Buyout

    Posted 01-08-2019 17:24

    I have a client with 3 brothers equally sharing the stock of an S corp.and a partnership owning the property upon which the S corp operates.
    One brother wants to retire and is being bought out.

    The S corp will be paying for the 5 year period they've agreed to.
    I was planning on the company buying back the stock rather than the 2 remaining owners buying the stock
    On the books, the partnership, whose sole asset is property that has a basis of $65,000 for land while owing arguably $200,000 to the bank
    FMV could be $750,000.
    For purposes of section 754, do I want as little as possible being assigned to the value of the partnership to reduce the gain he'll have?
    This will shift the basis to the value of the s corp which is inventory and goodwill



    Alfonso J. Mollica CPA




  • 2.  RE: Family Member Buyout

    Posted 01-09-2019 17:51
    Al:

    The 754 election on the partnership does not effect the seller.

    As far as the S corporation goes, it is merely a sale of stock, so the assets inside the corporation do not matter.

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    Robert Brown
    ROBERT N. BROWN, CPA
    Jericho NY
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  • 3.  RE: Family Member Buyout

    Posted 01-09-2019 17:57
    I need help with this obviously. Do you have time tomorrow to discuss?


    Alfonso J. Mollica CPA
    Alfonso J. Mollica CPA, P.C.


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  • 4.  RE: Family Member Buyout

    Posted 01-09-2019 18:00
    Al:

    I am out tomorrow. Let's shoot for Friday if you can.

    Robert N. Brown, CPA, CGMA


    Robert N. Brown, C.P.A.

    516-364-4949 work
    516-496-3883 fax
    rbrown@rnbcpa.com      
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    Jericho, NY 11753
    www.rnbcpa.com




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  • 5.  RE: Family Member Buyout

    Posted 01-10-2019 09:59
    ​The purchasers will likely want the proper allocation to the property so they will have an increased basis with the 754 election.  The sale or redemption of the stock will not permit an inside basis adjustment.  Consider a purchase of the stock so they will have an increased basis in the shares - it will be helpful later when the S corp. is sold.

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    Robert Barnett
    CPA, ESQ.
    Capell Barnett Matalon & Schoenfeld LLP
    JERICHO NY
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  • 6.  RE: Family Member Buyout

    Posted 01-10-2019 10:21
    Bob,

    Thanks for chiming in.

    I've the problem that I'm doing the books for the two entities as well as the brother being bought out.
    The book value of the share of property is in the red. The land is valued at 65,000 on the books while they owe at least 200,000 on it. FMV of property could be 1 million.

    The s corp book value is maybe $200,000.

    Sales price is 1.2 million, mostly to oust brother

    I should push to allocate majority to the property so it's close to fmv of property so I should use 333,333 (1/3 share of million)
    and the rest of sale to stock of company?

    Secondary is that the 1/3 ownership in each is to be taken up by 2 other relatives almost immediately.

    They don't intent to actually pay for 1/3 of property or stock.

    Section 754 is election at partnership level?

     I'm in over my head on this with lawyer calling me everyday re allocation because remaining partners don't see what's taking so long.
     Any additional clarification would be appreciated




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    Alfonso Mollica
    Mollica Taxes & Accounting
    Levittown NY
    516 597-4991
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