Material Participation by S Corp. Trusts
Since the enactment of the “material participation” test, as part of the passive activity loss (“PAL”) rules, in 1986, the IRS has issued very little guidance on how the test applies to trusts. Neither the Code nor the Regulations are helpful.
When the IRS issued proposed regulations for the
While the S corporation has a number of shortcomings, it historically has offered the best means for avoiding corporate level tax on the sale of business assets, provided the sale occurs beyond the corporation’s built-in gain recognition period. A recent development provides yet another advantage for an S corporation over a C corporation: an
In two earlier posts, we discussed how the division of a closely held, corporate-owned business may be effected on a tax-free basis. The IRS recently issued a ruling that illustrates the variety of circumstances in which such a division may be appropriate and feasible.
Distributing was an LLC that was treated as an S
In our last post, we indicated that the business owner’s guiding principles in evaluating any transaction in which he or she may engage with the business should be the following:
– Would an unrelated third party have entered the transaction on comparable terms?
– Is the taxpayer’s behavior consistent with what one would expect
With this post, we continue to examine transactions between the closely-held business and its owners. As we saw last week, special scrutiny is given in situations where a business is controlled by the individual with whom it engages in a transaction because there is a lack of arm’s-length bargaining. That is certainly the case
Transactions between a closely held business and its owners will generally be subject to heightened scrutiny by a taxing authority, and the labels attached to such transactions by the parties have limited significance unless they are supported by objective evidence. Thus, arrangements that purport to provide for the payment of compensation, dividends, rent, interest, etc.,
Many of us have encountered variations of the following scenario: a parent owns and operates a business; his kids are employed in the business; as the kids mature and become more comfortable and established in the business, some of them may want to assume greater managerial responsibility and to have a greater voice in the
Over nearly three decades, I have reviewed the income tax returns of many closely held corporations and partnerships. Quite often, on Schedule L (the Balance Sheet), I will see an entry for “loan from” shareholder or partner, as the case may be. I sometimes pause before asking the next series of questions: did the board
Many successful business people are also community-minded. They have done well for themselves and their business and, at some point, they seek to share some of their success with the communities they serve and in which they operate, and with the communities in which their employees live and work. This charitable inclination reflects, more often
One of the most frequently encountered scenarios in the context of a closely held business is the following: individuals X and Y are shareholders of a corporation, X is the majority shareholder (60%) and president of the corporation, and X 
and Y do not have a shareholders’ agreement. Over time, the interests of X and