Delaware corporation purchase

[Danb]

This statement is also not business advice

First REREAD the post of ZW, I’ll only add one item Z touched on the aircraft being partially or totally deprecated. 
Stated you take over the asset at adjusted cost basis, that is cost of plane plus capital improvements less depreciation allowed or taken. 
Mooney cost  120,000
New panel         75,000 new engine 70,000

total cost         285,000 less depreciation 265,000 = 20,000

the 20,000 is your basis for depreciation 

while you paid $260,000 for this perfect example of a Mooney mail, you sell it next year your out of money, market still high you get $$275,000 expecting to pay tax on $10,000 not bad oops not true 

Your cost 260,000 less depreciation 285,000 now fully depreciated 

275,000 selling price basis -0- gain.  275,000 your equally dumb sold it after 11 months

so taxable gain $275,000  uncle Joe just raised tax rate on C corporation’s pretend 15%

tax  approximately $ 45,000 true usage your paid 260,000 taxed 45,000 =$305,000

out of pocket after 11 months  260,000 plus corporate tax 45,000. So your out $30,000 for the eleven months not counting fixed costs insurance hanger and so on.

If you bought it via another new entity cost would still be 260,000 it’s personal so no depreciation gain 275,000 - 260,000 =15,000 or about 2,000 tax out of pocket approximately + 13,000 positive difference around 40-45,000.

Original seller paid tax say 45-60,000 plus or minus depends on depreciation recapture etc.

Don’t worry about my poor math skills, the picture depicts tax wise don’t buy the corporation buy the plane. The only winner is the government collection of tax including the state government.

No advice given above, I’ve retired my CPA certification just a play on numbers 

 

 

 

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[Djpayne07]

On 8/7/2022 at 11:38 PM, 1980Mooney said:

 

Spot on.  @Djpayne07 If you are buying a C Corp then you need to do due diligence on the Corporation.  You are "stepping into the shoes" of the prior owner.  You are acquiring the assets and all the liabilities (both on and off the balance) since its inception.  If, in the future, there is any claim for anything that is claimed to have happened prior to your ownership of the stock of the company, the company will have to defend itself.   Remember you don't own the plane, you own the stock in the C Corp.

Why own a plane in a C Corp?

First think about how you will set it up - How will you fly a plane that you don't personally own.  I assume that you will lease the plane from the C-Corp when you want to fly

Pros

• Liability for any claim is limited to the C-Corp (it protects you the owner of the stock in the C corp from a lawsuit related to the plane in the C-Corp)
  • If there is a lawsuit or claim against the C-Corp the most a party can get is the plane and any cash you put into the company

Cons

• Double taxation if your sell the plane in an asset sale (First the C Corp pays sales tax locally on the sale and then income tax on any gain and Then when the C Corp dividends the proceeds of the sale out to you (the shareholder) then you pay income tax individually on dividends received (i.e. what's left after the C-Corp pays its income taxes on any gain in sale).
• Everything you do as an individual is at arms length and must be recorded - you will pay hourly rental
• Bookkeeping
• I assume you will be the sole Officer of the C-Corp so, in the event of a claim (i.e. accident) you will be sued personally as a company officer (the C Corp will need to buy Directors and Officers Insurance)
• And, in the event of a claim (i.e. accident) since you will be flying and the PIC then you will still be sued personally for damages outside the C-Corp.
  • Two insurance policies for the plane will be required - The C Corp will need Liability and Hull and you personally will need to buy Liability 

And if there is any claim for anything from the past period of ownership - How will the company be able to defend itself?  The Company has no assets other than the Airplane.  Since the C Corp has no funds then how will the C Corp be able to hire tax accountants and lawyers in order to defend itself? 

• You, as the Sole Owner of the Stock of the C Corp, will need to either loan the C Corp some cash or buy more stock in the C Corp in order to infuse it with cash
• I assume that you will be the sole Officer and not an employee of the C Corp but you will be doing all the leg work
  • You are not an employee because the C -Corp is not paying you
• It will be your cash and your time/effort consumed to defend or settle any claim that arises from the past since the inception of the C Corp.

What types of claims or off balance sheet liabilities might arise after you buy the stock?  This could be any claim by a government entity, another company or an individual for anything that happened in the past

• Improper filings, not paying taxes - Federal, local, property, sales and use etc,
• Audit and challenge of past years taxes by IRS
• Claims for unpaid hangar, fuel or maintenance charges
• Claimed injury or damage during a flight that occurred during the past ownership
• Claims of Transporting contraband in the past (you may beat the criminal rap personally but the C-corp will need to defend you by spending your money that you need to put into the C-Corp for lawyers)
  • And the plane could be impounded even though it did not occur when you owned the stock in the C Corp

OK - So how do you protect yourself in the Acquisition of the C-Corp

1. Exhaustive Due Diligence on the entire past of the C-Corp (review all books, accounting, tax filings, claims, etc)
2. Indemnification by the Seller

Indemnification sounds great but.......Just try and collect after there is a claim.  Good luck on that.

Thank you for the response. As I know both the seller and the corporation personally this was not the case. The only asset owned by the corporation was the plane and no liabilities. With that being said, I ended up buying just the plane and did not acquire the corporation. I am happy to say I am a new Mooney owner.

[carusoam]

Congrats DJP!

-a-

[T. Peterson]

On 8/9/2022 at 6:49 PM, Djpayne07 said:

Thank you for the response. As I know both the seller and the corporation personally this was not the case. The only asset owned by the corporation was the plane and no liabilities. With that being said, I ended up buying just the plane and did not acquire the corporation. I am happy to say I am a new Mooney owner.

Whew!! Glad that’s all out of the way! Now can we hear a little about the airplane and your plans for using it? Just please don’t mention anything about ROP/LOP!

[Steve0715]

Just a comment about paying sales/use tax on an aircraft purchase.  Check your specific state laws.  In Texas there is a provision for an OCCASIONAL SALE.  There is a form to fill out signed by the seller.  It’s an exemption in the sales/use tax law.