Installment Sale Balance Sheet

[pkcrossley1]

I sold my S-Corp's assets in 2022. The Equipment component was a cash sale and the Goodwill component was   an installment sale covering 3 years. My question is what does my Balance Sheet look like at the end of 2022 (Year 1)? The company isn't operating anymore, so I am thinking that the only asset I have is the Installment Income Receivable? What about the offsetting capital entry? 

[tagteam]

The vast majority of balance sheet issues are beyond the purview of this board and/or are not conducive to being resolved via this board's format.

I will page @Rick19744 and @Mike9241 for any further input.

[Rick19744]

I would strongly recommend you get some assistance from a tax professional.  There are a number of issues that come into play here:

• Did you have a plan of liquidation drafted prior to the sale of the assets?
• Depending on the response to bullet number 1, this will / may impact how this transaction gets treated
• If a plan had been drafted prior to the sale, you could distributed out the note receivable with no tax consequences and the balance sheet will be zero.
• If you did not have a plan of liquidation, you will need to keep the S corp open while receiving the installment payments.
  • You will have book and tax differences that need to be reflected on the tax return (timing).
  • The reason you need to keep the S corp open, is that distributing a note receivable (installment note) that was entered prior to having a plan of liquidation, would be treated as a taxable gain; gain without the cash is not good.
  • As noted in bullet 3, there is an exception to this rule if the installment sale was entered subsequent to a plan of liquidation and then the S corp liquidated within 12 months.
• There could be other state issues that need to be addressed.
• I don't recommend you handle this by yourself, as errors can be costly.
• Make that appointment now, before the tax professional gets any closer to the 10/15 deadline (for individuals); and possibly 9/15 deadline depending on their practice.

[Mike9241 · Accepted solution]

if there was no plan of liquidation as described by @Rick19744  so that he S-Corp remains alive. in the simplest scenario (balance sheet) using tax basis accounting there would be the receivable, deferred gain (a liability) and offsetting amount in a shareholder equity account or accounts. if using proper accounting then only the receivable and equity.  the gain recognized each year would be shown in the M-1 line 2. 

oh and the S-corp return is due 9/15 not 10/15

the original due date of the S-corp return was 3/15/2023 the 7004, if filed, gives you a 6 month extension. 

[pkcrossley1]

Thank you. This makes sense to me. The S-Corp was not liquidated. According to the Form 4797 I have a Deferred Gain of $131,360 (section 1231) at the end of 2022. My receivable is $250,00. How do I make it balance?

 I understand that every time  I receive an installment I make an entry on M-1 Line 2, per the Form 6252.

Thanks for the reminder about the September 15th deadline.