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    2 Replies Latest reply on Nov 9, 2008 1:54 PM by Santa Fe CPA

    Selling C-Corp LLC (cash & personal capital loss)

    steve8 Newbie
      We formed a two-member LLC one year ago. We filed Form 8832 to be taxable as corporation (C-Corp). Now we are selling the whole LLC estate (name, machines, copyrights, licenses, but not cash) to someone else.
      I personally deposit into the LLC checking bank account totally $100K ($50K last November, $50K this March). Another member didn't invest any money into the company because he is managing the company.
      The sale price of the whole LLC is $500K. Another member doesn't want any of it. So I get all $500K.
      Basically I lose $500K.
      After sale, there will be about $1000 cash left in the company's checking account after paying all sales tax, employment tax and bills. As we don't have time to file tax return for the company before sale, we are not sure about income tax.

      OK. So here's the questions.
      1. Can I just get the cash out of the company's checking account and close the checking account?
      2. Can I treate my $500K losing as capital loss in 2008 personal tax return?
      3. The whole 2008 the company is losing money everyday. Is it possible that the company still need to pay income tax for 2008? If this happens, can I just personally pay that and count as my capital loss?

      Thanks for your help,
      Steve
        • Re: Selling C-Corp LLC (cash & personal capital loss)
          steve8 Newbie
          Some figures are wrong. They should be $50K.

          We formed a two-member LLC one year ago. We filed Form 8832 to be
          taxable as corporation (C-Corp). Now we are selling the whole LLC
          estate (name, machines, copyrights, licenses, but not cash) to someone
          else.
          I personally deposit into the LLC checking bank account totally $100K
          ($50K last November, $50K this March). Another member didn't invest any
          money into the company because he is managing the company.
          The sale price of the whole LLC is $50K. Another member doesn't want any of it. So I get all $50K.
          Basically I lose $50K.
          After sale, there will be about $1000 cash left in the company's
          checking account after paying all sales tax, employment tax and bills.
          As we don't have time to file tax return for the company before sale,
          we are not sure about income tax.

          OK. So here's the questions.
          1. Can I just get the cash out of the company's checking account and close the checking account?
          2. Can I treate my $50K losing as capital loss in 2008 personal tax return?
          3. The whole 2008 the company is losing money everyday. Is it possible
          that the company still need to pay income tax for 2008? If this
          happens, can I just personally pay that and count as my capital loss?

          Thanks for your help,
          Steve
            • Re: Selling C-Corp LLC (cash & personal capital loss)
              Santa Fe CPA Adventurer

              Hi Steve,

              You have a fairly complex question here.

              Since you sold the assets of the company less cash, then only the capital accounts need to be addressed here.

              First, If you close the bank account and trasfer the cash to the sharholders (members), this will be considered to be return of capital contributed, Thus reducing the sharholder's basis in his stock.

              Second you should have made a section 1244 election, Small Business Stock, for the founders of the business. This permits the founders to recognize the income or loss as ordinary, subject to the shareholder's personal ordinary tax rate, A cpital loss classification will restrict the shareholders to an annual short/long term capital loss reduction in total income of $3,000.00

              Third you must file a final form 1120 as an ordinary C corporation which recognizes the gain or loss on sale of assets and the accumulated operating losses as a net operating loss and discloses a negative retained earnings. This loss is then distrirbuted to the shareholders in accordance with plan of dislolution/re-organization in accordance with the proper section ot the tax code. You are buying back and retiring the stock of the company from the shareholders/investors. PLEASE SEE YOUR TAX ADVISOR..

              Finally you need to file a notice of disolution at the company with State authority where you filed articles of organization/incorporation.

              I hope that this provides you some help and guidance in solving this problem.

              Richard Robinson
              Santa Fe CPA