Facts: Acme Inc. an S Corporation owned by ten equal shareholders. Acme’s only asset a social media software application which it had hoped to become…
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Facts: Acme Inc. an S Corporation owned by ten equal shareholders. Acme’s only asset
a social media software application which it had hoped to become the successor to
Facebook. However, things have been going very slowly and Acme has been
losses each year. Acme has debts of $1,000,000. Unable to secure additional
, Acme ceases regular business operations in 2017, hoping to sell its assets for what
believed its value-$600,000. After two years of efforts, Acme is able to sell its assets
$800,000 in 2019 after which it pays its creditors80 cents on each dollar owed. There is
no money left for stockholders, nor is there any market for the stock going forward. Acme
then ceases all operations, but does not formally dissolve.
Sam is a holder of 10% of Acme’s stock, which he had purchased for $50,000 and received
nothing as of the date it ceased operations. There is no market for the stock as of 2019.
George holds a note from Acme for $10,000 for sales of office supplies to it in 2016 which
George had previously reported as income under the accrual method. George is finally paid
$8,000 of the notes face value in 2019.
Alice held a note for $10,000 lent to Acme as an investment in 2015. Acme defaulted on the
2016, and finally paid her only $8,000 of the face value in 2019 when it ceased
Question: What is the tax effect of these transactions on Sam, George, Alice and Acme.
What is the earliest time that any of the parties could take any deductions, or report any
gains, related to these transaction, and in what form and character?