Debt forgiveness as a gift

[manager5923]

An S-corp sold its assets to a buyer, who financed the transaction through the SBA.  The seller also took back a loan which is subordinate to the SBA loan. The Seller now, two years after the sale, wants to forgive this loan to the buyer.  If I understand it correctly, if it is considered a gift to the buyer, a 1099-C is not required to be filed and it will incur little to no tax liability for either party, is that correct? 

[Mike9241]

somethings seems missing from your statement. what is the relationship between the S-Corp seller and buyer, if any?  when the S-corp sold its assets the gain or loss was likely reported based on the total proceeds that would be received. so receiving less proceeds could mean your gain was overstated or loss was understated. this could also affect the tax basis the buyer is using. 

[Anonymous_]

@Mike9241 is correct; the transaction was reported at the time it occurred (or should have been).

You need to consult with a tax professional or probably local legal (tax) counsel) at this point.

See https://www.avvo.com/tax-lawyer.html

[Rick19744]

There are too many questions and a forum such as this is not conducive to providing too much direction.  This is best handled with a one on one with a tax professional.

• Are the parties related?
• Did you properly complete form 6252 in the year of the sale?
• Are you forgiving the entire loan balance or just part of it?
• Did you (and the buyer) complete form 8594?
• Based on the limited facts, it appears that you have to redo your form 6252 and form 8594 since there is a change in facts; adjustment in the purchase price.
• I assume there was also a purchase price agreement and this should be amended as well (you should use an attorney for this).

A tax professional (and attorney) should be able to help you navigate this matter.