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S-Corporation GALA with three equal shareholders(A,B,C) own two businesses D, E. A&B wants to buy business D and C wants to buy business E. What is the best way to do this with the least tax events? Can C pay A&B off for the net of what he is getting and giving up and all continue to own GALA with adjusted K-1's...without any other tax consequences?

S-Crop Dilemma
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Hale Stewart
Are these three companies the only assets owned by GALA, or does GALA own anything else?
Reply 253 weeks ago
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Tax Professional Answers

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Hale Stewart
First, GALA needs to hold a shareholders meeting that complies with all the requisite state requirements.  At this meeting, they need to determine if GALA (not the individuals) wants to buy these businesses.   As this event is one which would change the fundamental nature of the company, a super-majority (66%+) is probably required (however, I would need to see the shareholders agreement to make a final determination).  Assuming the company votes for the purchase, then the company would simply buy the businesses.

If the company does not want to purchase one or both businesses, than the individuals would have to determine the method which made the most sense relative to their individual tax position.  However, I couldn't make a formal determination until I knew the details of each individual's situation.
Leave a Comment 254 weeks ago

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Question Owner
Thanks Hale for the response. I may not be fully comprehending your answer and I am puzzled. this is a S Corp that ALREADY owns all these businesses already and these shhlds won pro rata 33.33 each of the outstanding shares of teh S Corp.

So who would still own the Company?
Reply 254 weeks ago
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Hale Stewart
Sorry for the confusion; I misread the fact pattern.
The company owns three companies, but the three stockholders want to purchase the assets in different ownership combinations. The company should look to performing a reorganization under 368. However, I would need to know more details about the underlying business and intended post-transaction intentions to give a final answer.
Reply 253 weeks ago
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Brian Huber
Seems to me that shareholder C wants out of GALA and will receive the assets of business E in exchange for his GALA stock. The tax consequences are fairly obvious for any tax professional. The question is unclear about why shareholder C would remain a shareholder of GALA if he only wants to own business E and not business D.
Reply 253 weeks ago
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Question Owner
Thanks Hale and Brian.GALA does not own any other businesess.Gala owns two gas stations.

Basically Shareholder C wants out and want to take one gas station with him while selling his shares back to A&B. Someone had advised them that they could do all this without causing a taxable event . I do not see a way of doing that and that was the basis of the question.
Reply 253 weeks ago

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