Related parties, be they family members or commonly-controlled business entities, must be careful when transacting business with one another. They, and their advisers, must recognize that these transactions will be subject to close scrutiny by the IRS. The parties must treat each other, as much as possible, as unrelated persons, and they must be able
Corporate Events as Indirect Gifts
Last month we considered a situation in which the recapitalization of the equity in a family-controlled business resulted in a taxable gift. Today we will consider how a family-owned corporation’s redemption of shares from a parent-shareholder may be treated as a taxable gift from the parent, and may result in some unexpected consequences for the
Removing A Minority Shareholder
During their life cycles, most closely held businesses will face the unpleasant task of dealing with a difficult, or otherwise unwanted, minority shareholder. Family-owned businesses as well those in which the owners are unrelated are likely to encounter this issue. At some point in its existence, the original owners of the business will: have a
Keeping It In the Family? Beware Accidental Gifts.
From a tax perspective, partnerships and limited liability companies are, by far, the most flexible of business vehicles. Among other benefits, they have no restrictions as to ownership or as to classes of equity; special allocations and disproportionate distributions may be provided for in the partnership or operating agreement; and there is pass-through tax treatment.
Keeping It Real, Especially In A Family Business
A taxpayer has the legal right to minimize his or her taxes, or to avoid them completely, by any means that the law allows. However, this right does not give the taxpayer the right to structure his or her affairs by using “business entities” that have no economic reality and that are employed only to
Parents Getting Good Kids In Trouble
When a parent hires a child in the family business, makes them an officer in that business, or grants them an equity interest in the business, the parent’s goal in doing so is to help the child. Unfortunately, those same acts may place the child in harm’s way. Similarly, when a child seeks to assist
Arm’s Length Merger or Gift?
Every now and then, a case comes along that is just chock-full of lessons, not only for taxpayers, but for their advisors as well. The Tax Court’s decision in Cavallaro v. Comr
. describes such a case. It involves closely held corporations, related party transactions, a tax-free reorganization and, oh yeah, a huge taxable gift.
Separating A Foundation From The Family Business
When people hear about a family business dispute, what most often comes to mind are sibling rivalries and disagreements, or a falling out between a parent and a child, with each side seeking to go its own way. In fact, these are the usual scenarios. There is a set of circumstances, however, that arises with
Personal Goodwill & Estate Valuation
In a previous post, we noted that individual shareholders often seek to reduce the double income taxation (at both the corporate and shareholder levels) that accompanies a sale of assets by, and liquidation of, a C corporation by arguing that they own personal goodwill. By claiming goodwill as a business asset that is separate
In Lieu of Litigation, A Painless Split-Up
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