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old farmer
Returning Member

Private sale

In a private sale between family members of stock in a closely held company, does the seller need to report anything to the IRS?  If so, how?

8 Replies
smarttees
Level 5

Private sale

speak with a pro.....there are tons of issues....sale to family member must be at fair market value or its a gift....section 1244 stock for the seller....% of shares owned and being sold......consent of other shareholders...

old farmer
Returning Member

Private sale

I have found an answer to my own question.  The company needs to issue a 1099-B.  The IRS rules are not well defined on this matter but issuing the 1099-B is the best choice.

Rick19744
Level 11

Private sale

As noted by @smarttees , there could be a number of issues here and will depend on the type of entity structure.

I would also advise discussing with a tax professional.  There are related party rules, there are rules if the party is disposing of all of their stock, etc.  All of these depend on the specific facts of your situation.  Not an area to be penny wise and pound foolish.

*A reminder that posts in a forum such as this do not constitute tax advice.*
old farmer
Returning Member

Private sale

I appreciate the advice but I think I have it covered.  I have found "M&A Tax Report,
Vol. 11, No. 8, March 2003, Panel Publishers, New York, NY." that covers my situation.  Admittedly it is from 2003 but I am going to rely on it.  I am aware of related party and controlled corporation issues.  A tax professional would cost me a significant part of what is involved and tax professionals do not always get it right.  In fact the article that I have referred to says exactly that.  The only way to be ok for sure is to have pre-approval from the IRS.

Rick19744
Level 11

Private sale

You don't indicate what type of entity is involved, nor does your referenced article, but I would also take a look at the following CCA.  While it does not reach a conclusion, due to limited facts, I believe this will provide some additional "comfort":

 

https://www.irs.gov/pub/irs-wd/1114025.pdf

 

Indirectly, I believe that it could lead to a conclusion that no reporting is required.  But as noted above, your facts are also limited.

*A reminder that posts in a forum such as this do not constitute tax advice.*
old farmer
Returning Member

Private sale

Thanks for the link.  The "regularly redeems" is addressed in the article that I had referenced.  It seems that the IRS has not specified anything for the  'occasionaly' redeemed but my article says that the safe thing to do is is to issue the 1099-B.  It seems silly but the 1096 has to be sent along with the 1099-B.  In my case the 1096 will simply say that here is a 1099-B along with it.  In your case it looks like they forgot the 1096.  This is all pretty ridiculous.  I'll bet that most "tax professionals" have never dealt with this.  I am not a professional but I am an AARP tax volunteer.  It is not unusual for us amateurs to find mistakes made by the H&R Block professionals.

old farmer
Returning Member

Private sale

FYI:  We are a C-corporation

Rick19744
Level 11

Private sale

That is helpful.

As a side note, don't forget to make the appropriate adjustment to the earnings and profits of the C corp.

 

Finally, your article was dated in 2003.  There were changes to the reporting requirements under Section 302 that apply to tax returns filed after May 30, 2006.  Someone needs to take a look at those as the seller has some reporting requirements as well.

 

You need to look at form 1099-DIV.  Box 9 is where you report the cash liquidating distribution.  Take a look at Regulation 1.6043-2(a).  My opinion is that this is the appropriate 1099 to file along with the form 1096.

 

".......every corporation making any distribution of $600 or more during a calendar year to any shareholder in liquidation of the whole or any part of its capital stock shall file a return of information on Forms 1096 and 1099, giving all the information required by such form and by the regulations in this part....."

 

As noted previously, this is a complicated area REGARDLESS of the $$ involved.

*A reminder that posts in a forum such as this do not constitute tax advice.*
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