A dental practice, an 'S' Corporation with two equal stockholder/employees, wants to allow another dentist, who is also an employee, to purchase a 20% interest in the Corporation for $400,000. The book value of a 20% interest is $200,000. The two existing stockholders own 50 shares each. Would it be tax advantageous for the sellers to each sell 20% of their stock to the third dentist personally or for the Corporation to issue an additional 25 shares to the 3rd dentist for $400,000? If the Corp issues new shares, would a step up in basis have to be recorded? If the 'S' Corp finances $175k of the $400k purchase price over 3 years, would this be treated as an installment sale or does the Corp simply record the receivable & offset it as the payments are received?

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