The tax consequences of selling a business organized as a C corporation can vary tremendously depending on a few key factors.
A seller needs to determine is whether to sell stock or assets.
THE CRITICAL ISSUE FOR TAX PLANNING is whether the assets distributed are considered property under IRC code section 336 and whether the corporation owns them.
THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles turns on whether there is an employment or noncompete agreement in effect at the time the intangibles are distributed.
However, it is possible to make certain generalizations.
THE PRACTITIONER SHOULD ADVISE the client to terminate employment and noncompete agreements with shareholders before liquidation.
As of 2010, the federal tax rate for long-term capital gains was 15 percent, a rate favorable to those whose stock increased in value after purchase.
Corporations, however, do not receive such favorable terms when selling assets. Cash paid to shareholders upon liquidation is also taxable.
A fine line exists between definitions of a corporate liquidation and dissolution.
But for tax purposes, the defining line can make a big difference.
Without such an agreement, client goodwill attributable to the personal characteristics of a shareholder isn’t a property right belonging to, or transferable by, a firm.