Limited Liability?

Many individual taxpayers who invest in a closely held business, including one organized as a corporation, fail to appreciate there are circumstances in which they may be held personally liable by a state or local taxing authority for the sales tax collected or required to be collected by the business.

In other words, if certain criteria are satisfied, the limited liability protection that an individual shareholder would normally enjoy as a matter of state corporate law, and which they may have assumed – not unreasonably – would shield them from personal responsibility for any and all liabilities of the corporation, including taxes, will be of no avail even where the shareholder has respected the separate legal status of the corporation.[i] Continue Reading Shareholder Beware: Personal Liability for N.Y. Sales Tax

An often-explored theme of this blog is the frequency with which similarly situated owners of similarly situated closely held business, facing a similar set of economic circumstances, and presented with a similar set of choices, will repeat the mistakes made by countless taxpayers before them.[i]

Rational behavior? Does the answer depend upon the taxpayer’s appetite for risk-taking? Being an entrepreneur necessarily involves some exposure to risk. However, there is a difference between the calculated risk that an intelligent business owner knowingly takes, on the one hand, and the risk that comes with negligently disregarding well-established tax principles, on the other. Continue Reading Unreasonable Compensation As Constructive Dividend, Redux

Withdrawing Value

In general, the owners of a closely held business have several options by which they may withdraw money from the business without selling their interest in the business.[i] For example, an owner may:

  • Receive compensation for services rendered to the business (an employee-employer, or other service-provider/service-recipient, relationship);
  • Receive rent or royalty for allowing the business to use the owner’s property (a lessor-lessee/licensor-licensee relationship);
  • Sell property to the business (a seller-buyer relationship); and
  • Borrow money from the business (a debtor-creditor relationship).

Continue Reading Current Partnership Distributions: When Do You Figure Your Basis?

The 2023 Budget

Last week, the New York Legislature passed the State’s 2022-2023 Budget. The $220 billion Budget reflects an $8 billion increase over last year’s budget (a more than 3 percent jump). It is also $4 billion more than what the Governor had initially proposed. In fact, it is the largest spending bill ever to have been enacted by Albany.

I suppose the explanation is obvious: bolstered by still unspent Federal stimulus money[i] and better than expected tax revenues, the Governor and the Legislature decided to be especially generous to their constituents during this election year.[ii] Continue Reading The Deduction of Cannabis Business Expenses Following New York’s 2023 Budget

“Déjà vu All Over Again”[i]

The White House last week released the President’s Budget for the Fiscal Year 2023.[ii] The Budget is ambitious, but its “investments,” we are told, “are more than paid for with tax reforms focused on making sure the rich and the largest corporations pay their fair share.” Sounds familiar, doesn’t it?

Continue Reading Attention Congress: Focus On the Estate Tax Regime; Leave the Income Tax Alone

“Yes” to Art, “No” to Tax

Private patronage of the arts. For centuries, artists, museums, and galleries have depended, in no small part, upon the largesse of wealthy families.

Today, as in the past, many of these benefactors are the successful owners or former owners of businesses who can afford to indulge their passion for visual art.[i] Others are investors for whom art represents merely one part of a balanced portfolio.

Continue Reading The Rental of Art Between Related Parties: Applying the Resale Exclusion to the N.Y. Sales Tax

Withdrawing Value

Any tax adviser who has represented closely held businesses and their owners long enough realizes there are certain recurring themes that transcend the otherwise unique characteristics of the industry of which the business is a part, the market or geographic region in which the business operates, the overall economic climate, and even the personal traits of its owners.

Last week we explored a variation on one of these themes – the withdrawal of value from a closely held business on a tax-efficient basis – when we reviewed several of the factors that the owners of a closely held business (organized as a C corporation[i]) should take into account in setting the amount of compensation the business should pay the owners in exchange for their services while preserving the corporation’s ability to deduct such payments in determining its taxable income.[ii]

Continue Reading Constructive Dividends and The Closely Held C Corporation

Double Tax

The shareholders of C corporations have long sought legitimate operational and transactional structures by which they may reduce the double tax hit that is realized when such a corporation distributes its after-tax operating profits or its after-tax sale proceeds to its shareholders.[i] Continue Reading Reasonable Compensation Meets The Principal Shareholder of a C Corp

Assumed Liabilities

If a taxpayer were to sell the assets that comprise the taxpayer’s business, they would realize gain if the amount realized by the taxpayer from the sale is more than the taxpayer’s adjusted basis for the property.[i]

The taxpayer’s “adjusted basis” for a property is their original cost for the property – what they paid for it plus certain costs incurred in connection with the acquisition – increased by certain additions[ii] and decreased by certain deductions.[iii] In general, the adjusted basis may be described as the taxpayer’s unrecovered investment in the property. Continue Reading Tax Court’s Decision On Assumption of Liability in M&A – A Clean Block or Goaltending?

Segue

Earlier this month, the Treasury released a study in which it examined how transactions in “high-value art” may facilitate the laundering of illicit proceeds.[i] The study also considered efforts that be undertaken by government and the private sector to mitigate money laundering through the high-value art market. Continue Reading Taxing NFTs as an Investment in “Art”