USA business forced to close down

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Apr 17, 2015
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hello,

i have a client running a business as an authorized retailer for a large corporation. The corporation is now turning over retailers to corporate stores and taking over.

The client has been managing this business for 10+ years and will be given around $400,000 by the corporation for the store and all the rights.

The client has been paying rent on their store, so how will this $400k be taxed? what is their cost basis? The amount they put into the company + any renovation work, etc? I'm assuming its their Paid in Capital on the Balance Sheet.

it is an s-corp and they will be dissolving the company once the deal goes through in the next few months.

Any literature on tax implications will be greatly appreciated.
 
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If they are an S-corporation his basis is impossible for anyone to know without a whole lot more information than would be pratical to provide here. Is the individual being paid $400,000 or the corporation? What does the agreement say the payment is for? The $400,000 is likely going to be a combination of ordinary income, Section 1245 Gain, ordinary income from depreciation recapture and possibly some capital gain. If paid to corporation and corporation is not dissolved in same year could end up with capital gain in year of receipt and capital loss in following year which would be limited to $3,000 per year deductible loss.
 

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