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
selling your business
Family Transfers, Part IV: Not Just Gifting
By Farrell Fritz P.C. on
Posted in Federal Tax Issues
Our last post covered certain gifting techniques. Today, we will look at some non-gift approaches to transferring a parent’s interest in the family business to his or her children.
Sale
The most common means for transferring a business interest to someone is through a sale of the interest. Thus, it not unusual for a parent…
S Corps: Not Gone Yet
By Farrell Fritz P.C. on
Posted in Federal Tax Issues
It has become relatively rare for an accountant or attorney to recommend the use of an S corporation for a newly-formed, closely held business. Instead, the LLC, taxable as a partnership, has become the entity of choice for most start-ups, and for good reason: it is a flow-through entity for income tax purposes, and it…
Sales Tax in M&A, Part III: The Income Tax Impact of Sales Tax
By Farrell Fritz P.C. on
Posted in Federal Tax Issues, State Tax Issues
We noted earlier that sales tax is often viewed as a “sideshow” to income tax considerations in structuring a deal. Regardless, it represents real economic cost to the payor. To appreciate its “true” cost, however, one must also consider its income tax consequences.
In the case of the seller or transferor who pays the tax,…
Sales Tax in M&A, Part II: Bulk Sales
By Farrell Fritz P.C. on
Posted in State Tax Issues
Overview
The buyer in a “bulk sale” transaction – i.e., the sale and purchase in bulk of the whole or part of the “business assets” of a person required to collect sales tax – must file a notice of bulk sale at least ten days before taking possession of such assets or paying for them…
Sales Tax in M&A, Part I: The Economics of the Deal
By Farrell Fritz P.C. on
Posted in Federal Tax Issues, State Tax Issues
Why are taxes so important to the sale of a closely-held business? Economics. Any deal, whether from the perspective of the seller or of the buyer, is about economics, and few items will impact the economics of a deal more immediately and certainly than taxes. The deal involves the receipt and transfer of value, with…
(Un)reasonable Compensation: When Hindsight Isn’t 20/20
By Farrell Fritz P.C. on
Posted in Federal Tax Issues
In the recent case Thousand Oaks Residential Care Home I, Inc. v. Commissioner, the Tax Court considered whether a corporation’s compensation packages for its owner-employees were unreasonable and thus disallowable as deductions. The facts can be summarized as follows: in 1973, Petitioners “Mr. and Mrs. F.” purchased a struggling corporation called Thousand Oaks Residential…
Rolling Over the Parent’s Equity
By Farrell Fritz P.C. on
Posted in Federal Tax Issues
It is not unusual for a parent to have successfully started and grown a business, only to find that his children either have no interest in continuing the business or are incapable of doing so. Prior to that moment of realization, however, Parent may have transferred equity in the business to his children, either as…
Sale of Business Meets Investment Income Surtax
By Farrell Fritz P.C. on
Posted in Federal Tax Issues
The owners of a business must consider many tax issues in connection with its sale. These include the structure of the transaction as a sale of assets or stock, the amount of gain arising from each structure, the character of the gain as ordinary or capital, and the resulting tax liability. From the foregoing, the…