USA Receiving Tax Credit After the Sale of the Business

[mikeruney]

My client is expecting a large ERC payment by the end of the year. The problem is both partners in this C-corp are looking to sell the business. The sale is most likely going to close before the ERC money hits the bank. I’m not sure how to account for this money making sure the current partners get it and it doesn’t go to the new buyers. Typically, without the sale, I would

1. Journal Entry 01
   1. Cr: “Other Income” (because ERC is taxable)
   2. De: “Due from ERC” (asset account)
2. Journal Entry 02 (When the money arrives)
   1. De: “Bank Account”
   2. Cr: “Due from ERC”
3. Journal Entry 03 (when the money is removed from the bank)
   1. Cr: “Bank Account”
   2. De: Whatever they do with the money like “Partner div” or “payroll” or whatever

However, this sale of the business is throwing a wrench in my spokes. They want to account for this money on their 2021 Tax return so that it’s already accounted for during the sale of the business, that part is easy. It’s the “money hitting the bank after the sale of the business” that I’m not sure how to handle.

Ideally, I’d like to make a liability account labeled “Loan from Seller” so when the ERC money hits the bank account it’s then used to pay off that loan account and everything gets Zeroed out. I’m not sure how to create the “loan to seller” account cause I can’t figure out what the other side of that journal entry would be.

I’m open to any and all suggestions. Please and Thank you.

 

[stevuke79]

I would think it's accounted for in (or added on to) the sale price of the business.

This current asset should increase the equity being bought out. (Like you say, the ERC is income and lands in retained earnings.)

It's an asset of the business. It's It's part of what the seller is selling and should be accounted for in the price.

The entries you first propose are correct. When the cash hits the account you debit cash and credit the asset. Done.

There's no need to have a "loan from seller". The seller was paid off when they sold the business... ERC included.