Constructive Dividends
In the last several weeks, I have seen a number of examples of what are commonly referred to as “constructive dividends,” including a corporation’s satisfaction of the personal expenses of its shareholders.
Unlike a regular dividend distribution, a constructive dividend does not involve the formal declaration of a dividend by the corporation, followed
At the beginning of every year, the IRS informs the public of those tax matters on which the IRS will not issue letter rulings. Typically, these are areas of the tax law that are under study at the IRS, and that the IRS hopes to address through the publication of a revenue ruling, a
Tax-Free? Not Quite.
In general, a C corporation may achieve pass-through treatment for income tax purposes, without triggering immediate income or gain recognition, by electing to be treated as an S corporation.
One caveat to this general rule, however, is the so-called “LIFO Recapture” rule. Under IRC Sec. 1363(d), an electing C corporation that
Davidson was dead to begin with. Dead as a door-nail. His death did not come as a great surprise, at least to some, though few (other than the IRS) expected him to go as quickly as he did. And that was the root of the problem. But I don’t want to get ahead of myself.
A closely-held business will often use deferred compensation arrangements to induce or reward certain behavior by its key non-shareholder executives; for example, to incentivize the executive to attain certain business performance goals or operational benchmarks.
Such an incentive arrangement will defer the payment of compensation such as a bonus until the compensation is earned, usually
It’s Not That Simple
The rules that govern the taxation of partners and partnerships are among the most complex in the Internal Revenue Code. This reflects, in part, the great flexibility that is afforded to partners in structuring their economic arrangements.
This complexity is often manifested in a difference of opinion between a taxpayer and
Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the
In most cases, a financially troubled business will face some difficult choices, including which creditors to pay and which to defer. The Federal and State taxing authorities are often among these creditors. As we have seen on other occasions, a business’s decision to defer the payment of State taxes may have significant legal and, ultimately
Silly Question?
“Which do you prefer: a taxable or a non-taxable transaction?”
Most taxpayers would probably respond that they prefer a non-taxable transaction. After all, who wants to pay tax if they don’t have to?
Closer analysis, however, may reveal that given a particular taxpayer’s situation, a taxable transaction may yield a better result.
They’re Still Here
Once upon a time, before the advent of limited liability companies (“LLCs”), taxpayers would occasionally acquire real property in a corporation rather than in a limited partnership.
The corporation may have been created to hold the real property, or it may have been an operating company that, for some misguided reason, decided