A buyer who wants a business but not its liabilities will often buy the assets instead of the stock, and that one decision reshapes how the entire deal gets reported. This episode breaks down the S corporation asset sale from the ground up: allocating the purchase price across seven asset classes using the residual method under Section 1060, reporting it on Form 8594, and handling goodwill and other Section 197 intangibles. It also covers why each asset's character drives the gain that passes through to shareholders, and what documentation has to be locked down before you prepare a single return.

• (00:00) - Stock vs Asset Sales
• (03:32) - Course Goals Overview
• (06:04) - Lighthouse Example Setup
• (13:16) - Why Buyers Prefer Assets
• (16:29) - Section 1060 Basics
• (25:36) - Residual Method Classes
• (32:17) - Goodwill and Going Concern
• (40:45) - Personal Goodwill Cases
• (42:57) - Form 8594 Reporting
• (47:53) - Elections 338 and 336
• (50:08) - Due Diligence Checklist
• (53:18) - Workflow and Wrap Up

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When ownership in an S corporation changes hands, the tax consequences routinely catch both clients and their advisors off guard. Jeremy walks through the two critical questions that drive correct reporting — who or what acquired the stock, and when did the transfer actually occur for tax purposes — and explains how the answers determine whether a transaction is treated as a capital sale, a stock redemption, or a distribution. He also covers the two close-the-books elections available under IRC Section 1377(a)(2) and Reg. 1.1368-1(g), and why locking in those elections before filing — ideally before the transaction closes — can make a significant difference in how income gets allocated between outgoing and incoming shareholders.

Connect with Jeremy
https://www.linkedin.com/in/jwellstax
https://www.steadfastbookkeeping.com

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This podcast is a production of Earmark Media

S corporations maintain three separate ledgers — retained earnings, AAA, and shareholder stock basis — and each one answers a different question about the entity and its owners. Understanding why they diverge, and which one actually governs whether a distribution is taxable or a loss is deductible, is where a lot of tax professionals run into trouble. Jeremy walks through the mechanics of all three, including Form 7203, the order-of-operations rules for calculating stock basis, and what's really going on when a practitioner misclassifies distributions in excess of basis as shareholder loans.

• (00:00) - Why S Corps Are Hybrid
• (02:20) - Three Key Ledgers
• (06:35) - Retained Earnings Basics
• (10:52) - IRS Scrutiny of Retained Earnings
• (15:13) - AAA Explained and Origins
• (21:43) - AAA vs Retained Earnings
• (27:29) - Stock Basis and Common Mistakes
• (36:23) - Capital Contributions and Form 7203
• (43:37) - Basis Ordering Rules and Elections
• (48:55) - Worked Example and Wrap Up

Connect with Jeremy
https://www.linkedin.com/in/jwellstax
https://www.steadfastbookkeeping.com

Subscribe on YouTube
https://www.youtube.com/@TaxinAction

Earn CPE for Listening to This Podcast
https://www.earmark.app/

This podcast is a production of Earmark Media