Correct...the S-corp has a big hole.  This will take some time to overcome. The stock was sold at $24k which is a personal capital gain to the shareholder.

The -137k AAA.  How does that get taxed to the old shareholder?  I am struggling as reporting it as an excess distributions (capital gain) or a cancellation of debt.  Feeling like it is cancellation of debt. 

The new shareholders will have a negative RE and if I am thinking about it correctly, will have basis issues for a few years and not be able to draw out any monies without capital gain implications. The company generates a bit of cash flow.  

Form 8594 requires me to allocated purchase price between assets.  The purchase price was $24k for the stock and no other monies received.  I guess I would use the 24k and allocate between the classes of assets.