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
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
Receiving Services From Your Business
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
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.,
How Should You Pass the Torch to the Kids? Carefully.
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
Loan? Oh That!
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
New York Business, the Federal Tax Return, and New York Domicile
We all know a story like Bill’s: Bill is a New Yorker that has built a successful business and has attained a level of financial security. His kids are grown, and have moved to the West Coast.
Bill decides that it is time to enjoy the fruits of his labor, preferably in a warmer climate.
“Wandry”ing About Defined Value Clauses?
Taxpayers sometimes employ a so-called “defined value clause” (“DVC”) in connection with a gift of property that is difficult to value, such as an equity interest in a closely-held business. In the case of such a gift, the value of the business interest – the amount of the gift – is never really “established” for
Recapitalize With Care! (The IRS is Watching)
A recapitalization is an exchange between one corporation and its shareholders or security shareholders. It has been described as a “reshuffling of a capital structure within the framework of an existing corporation,” and it is one of the most common forms of reorganization encountered in the case of a closely-held business. Simple examples include the