Tax implications of selling S corp stock back at par value when exiting business

7 Thanks for the info. How would I figure out what my basis is? I've been with the company for about 6 years, and I know we've had some profits that were reported on my K-1s each year. Does that affect my basis?

14 Yes, your basis has absolutely been affected by those K-1s over the years. Your initial basis would have been what you paid for the stock when you first acquired it. Then, each year your basis increases by your share of the company's income reported on your K-1s and decreases by any distributions you received. So if you've been receiving K-1s showing income but not taking out equivalent distributions, your basis has likely been increasing over time. This is actually common in S corps and might mean you have a higher basis than your original investment, which could result in a loss when selling at par value. To calculate this accurately, you should gather all your K-1s from those 6 years along with records of any distributions you've received.

3 Does it handle the accumulated adjustments account too? My accountant always talks about the AAA account with our S corp and I'm honestly confused about how that plays into basis calculations.

18 Is this service actually reliable for S corp issues? I've tried various tax tools before and they often don't handle the more complex business situations very well, especially with pass-through entities. How detailed was the analysis?

9 Yes, it handles the AAA account calculations as part of the analysis. The AAA is tracked at the corporate level, but it affects what's taxable when distributions happen, so it's definitely relevant for your situation. The analysis is quite detailed. What impressed me was how it handled all the special allocations our company had made over the years. It analyzed all the K-1s, identified the income types (ordinary business income, rental income, etc.), and tracked distributions separately. The report broke down my starting basis, all adjustments year by year, and my final basis, with references to the specific tax code sections that applied. My accountant was actually surprised by how comprehensive it was.

22 It's not just dialing for you - they use a system that navigates the entire phone tree and holds your place in the queue. You just get a call when a human agent is actually on the line ready to talk. No more listening to that horrible hold music for hours. They don't have any special access to the IRS - they're just doing the waiting for you. What makes it work is that they have multiple lines going simultaneously and can stay on hold indefinitely, which most of us can't do when we have jobs and lives. I was skeptical about getting accurate information too, but I found that once you actually get through to an agent in the right department (business tax in my case), they were quite knowledgeable about S corporation issues.

8 How does this actually work though? Does it just dial for you or what? Not sure how a service could get through when the IRS phone lines are constantly jammed.

18 This sounds like BS honestly. The IRS wait times are terrible by design. There's no "secret sauce" to getting through faster. And even if you do get through, the agents often give conflicting information depending on who you talk to. I doubt this service delivers anything meaningful.

22 It's not just dialing for you - they use a system that navigates the entire phone tree and holds your place in the queue. You just get a call when a human agent is actually on the line ready to talk. No more listening to that horrible hold music for hours. They don't have any special access to the IRS - they're just doing the waiting for you. What makes it work is that they have multiple lines going simultaneously and can stay on hold indefinitely, which most of us can't do when we have jobs and lives. I was skeptical about getting accurate information too, but I found that once you actually get through to an agent in the right department (business tax in my case),

1 I hadn't thought of that approach! Would the tax implications be different for me if the other shareholders bought my shares directly vs. the company buying them? And would there be any difference for them?

5 For you as the seller, the tax treatment would be essentially the same - you'd still compare your basis to the selling price to determine if you have a gain or loss. The difference mainly affects the other shareholders and the company. When the other shareholders buy your shares directly (cross-purchase), they get a basis in those shares equal to what they paid you. If the company buys your shares (redemption), the remaining shareholders don't get any basis increase but their percentage ownership of the company increases automatically. Another advantage of the cross-purchase is that it doesn't affect the company's cash reserves. This can be important if the company needs to maintain certain cash levels for operations or lending requirements. The disadvantage is that the other shareholders need to come up with the cash personally rather than using company funds.

2 Did you have issues with the IRS not believing the sale price or something else? I'm curious what kind of documentation would be most important.

The IRS questioned whether the sale was actually a legitimate transaction or if it was really a disguised gift to the remaining shareholders, since I was selling way below fair market value. They also wanted to see that we had properly valued the shares and that the sale price wasn't completely arbitrary. I ended up needing to get a business valuation done retroactively and provide documentation showing the business reasons for the below-market sale. A written agreement upfront stating the sale price, the rationale, and signed acknowledgments from all parties would have saved me months of headaches and professional fees.

That's really helpful to know about the documentation requirements. When you say "business reasons for the below-market sale," what kind of rationale did the IRS find acceptable? I'm planning to sell at par value partly because I don't want to strain the company's cash flow, and partly because I've been well-compensated over the years and don't feel I need to extract my full equity. Would those reasons hold up under IRS scrutiny?

Those reasons could work, but you'll want to document them carefully. The IRS generally accepts below-market sales when there are legitimate business purposes beyond just being "nice" to the other shareholders. Your rationale about not wanting to strain cash flow is actually pretty solid from a business perspective - it shows you're considering the company's operational needs. I'd recommend having the company's accountant or attorney draft a formal agreement that spells out: (1) the sale price and how it was determined, (2) your business reasons for accepting less than fair market value, (3) acknowledgment from all parties that this is an arm's length transaction despite the relationship, and (4) maybe even get a simple valuation or at least document how you arrived at what fair market value would be. The key is showing this was a deliberate business decision rather than a gift in disguise. Your years of good compensation actually support your case - it shows the transaction isn't about additional compensation but about facilitating a clean exit.