Liquidating assets for
If the S corporation has the foresight to adopt a plan of liquidation before the sale, Sec. In the year of sale, only the of gain attributable to the cash the S corporation received would be taxable. 453B(h), no gain would be recognized on the distribution, and the shareholder would take a 7 basis in the installment note (0 stock basis increased by the S corporation gain on the sale).
The result is that the shareholder recognizes his or her entire 0 gain in the year of sale.Different results can occur under the installment sale rules depending on whether the S corporation liquidates or stays in existence.Advance planning for when the plan of liquidation is adopted can make a big difference in the tax results for S corporation shareholders.This planning technique becomes more valuable if the shareholder's outside basis in the S corporation stock is less than the S corporation's basis in the assets.A shareholder has a 0 basis in S corporation stock.
In this case, failure to adopt a plan of liquidation before the sale results not only in the acceleration of the installment gain, but also the excess of inside basis in assets over stock basis.