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
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.
No Money To Pay A Bonus? Did It Really Happen?
Sometimes, the U.S. Tax Court will rule on a matter the outcome of which would seem – at least to an outsider, or on some visceral level – to have been a foregone conclusion. Indeed, one is often left wondering how such a matter was allowed to progress through an IRS audit, IRS Appeals, the
S Corp. Trusts & the 3.8% Surtax on NII: Part IV
Planning for the Surtax
The best time to plan for any tax event is well before it occurs, and this also applies to the surtax. The trustee of a trust will almost always want the business income of the trust to be characterized as active income. The surtax may be addressed, at least partially, in
S. Corp. Trusts & the 3.8% Surtax on NII: Part III
The IRS’s Position on Material Participation by Trusts
According to the IRS, material participation for a non‑grantor trust should be determined solely by reference to the activities of the trustee acting as such; it should not include the trustee’s participation in any other capacity (e.g., as an employee of the corporation), nor should it consider
S Corp. Trusts & the 3.8% Surtax on NII: Part II
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
S Corp. Trusts & the 3.8% Surtax on NII: Part I
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 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
Deductions Under Scrutiny
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
Careful How You Characterize That…
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.,