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Sibling Rivalry

You have probably encountered family-owned corporations in which the founder’s offspring are involved in the business to varying degrees. They may even own some equity, typically having received such equity as gifts from their parents.[i] These situations often evolve in a way that they present challenging succession planning issues for the family and its business.

Let’s assume that two siblings are active participants in the family-owned business. Each aspires to lead the corporation after their parents have retired. At some point, their competing goals, divergent management styles, or different personalities may generate enough friction between the siblings, and within the corporation, so as to jeopardize the continued well-being of the business.[ii]

Continue Reading Dividing the Multi-Family Corporation

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Across the Hudson

Last week, Governor Murphy of New Jersey staked out a position on New York City’s congestion pricing proposal, stating that it “can’t be ‘on the backs of New Jersey commuters.’”[i]

“Whether it’s how we’re taxed by our neighbors or this proposal for a congestion-pricing scheme that would be a huge burden on commuters,” the Governor continued, “we can’t have it both ways.”

Of course, the Governor was referring to New York’s taxation of New Jersey residents who are employed in New York and whose earnings are taxed in New York, for which the New Jersey residents claim a credit against their New Jersey income tax liability on such earnings.[ii] Continue Reading Push-Back On New York’s Mission to Tax Non-New Yorkers?

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What’s Is It?

When is a loan not a loan? When it’s something else – for example, equity.

This is one of those pesky facts and circumstances issues that plague courts, taxpayers, and tax advisers to no end.

Debt

On one end of the spectrum, we have a pure debtor-creditor relationship. Very, very simply, a lender has transferred a portion of its funds to a borrower entity for the borrower’s use for a stated period of time (the “term” of the loan). In exchange for the use of the lender’s money (the principal), the borrower agrees to pay the lender a fixed rate of interest; basically, compensation for the time value of money – the longer the term of the loan, the higher the rate charged. At the end of the term, the borrower is required to return the principal to the lender, plus the amount of the accrued but unpaid interest. To secure its right to be paid the principal and interest, the lender may require that the borrower provide collateral for the loan, or it may require that the owners of the borrower entity guarantee the borrower’s obligations under the loan. On the liquidation of the borrower entity, the lender is entitled to receive the unpaid principal and interest owed by the borrower and nothing more. However, the lender is entitled to receive this sum before any amounts may be distributed to the owners of the borrower entity. To the extent any amount remains after payment of the principal and interest, such amounts belong to the borrower’s owners. Continue Reading Shared Appreciation Interest: Debtor-Creditor or Partners?

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Everyone has heard about the affluent, or even not-so-affluent, New Yorkers who have moved to Florida, or to another state,[i] to escape New York’s tax regime, not to mention the cold.

More recently, some of us are encountering New Yorkers who are looking to relocate, not to another state, but to another country.[ii]

Today we’ll consider the New Yorker who is thinking about moving overseas – in no small part because they have had their fill of paying New York taxes[iii] – but who is not willing to give up their U.S. citizenship; they want to maintain their U.S. passport to keep open the option of returning to the U.S. if future circumstances ever warrant such a move.[iv] Continue Reading When New York Taxpayers Move Overseas

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It is a fact that the phenomenon of human migration has been a major force in the history of the world.[i]

Indeed, among the themes that have remained constant during my years of practice, there are two that may be described, semi-facetiously, as modern manifestations of humanity’s migratory tendencies. Continue Reading Moving to the U.S.? Have You Planned for the Estate and Gift Taxes?

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The Issue

I recently encountered an interesting situation in which someone suggested that a grantor trust be decanted into a non-grantor trust before the end of the taxable year. The reason? To avoid the special interest charge that would otherwise be imposed with respect to the deferred tax liability attributable to the trust’s share of an installment obligation.[i]

The trust’s principal asset was a membership interest in an LLC that was treated as a partnership for purposes of the federal income tax. Among the assets held by the partnership was an installment obligation that had been received by the partnership earlier in the taxable year in exchange for the partnership’s sale of unimproved real property.

In order to appreciate the issue presented, it may be helpful to first take a short walk through the installment sale rules. Continue Reading Planning for the Interest Charge on Installment Sales: Decanting a Grantor Trust?

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Where is the Economy Heading?

According to the data released Friday by the Department of Labor, the U.S. economy added approximately 528,000 jobs in July, reducing the unemployment rate to 3.5 percent.[i] Although this figure was certainly better than what was expected by many economists, it seems to belie other signs of economic weakness.

Many states, for example, have reported recently that they are experiencing significant declines in estimated tax payments or that they expect declines in revenue from the withholding of personal income taxes.[ii] These developments are being attributed to the performance of the stock market[iii] and to the fact that wages have not kept in step with inflation.[iv] Continue Reading New York to Taxpayer: “Forget What the Feds Said, You’re a ‘Responsible Person’”

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Summer Break?

After the last couple of weeks, I’m looking forward to Congress’s summer vacation. I’m pretty sure our elected representatives feel the same way, though it is unclear at this point when they will be heading to their respective homes – or wherever else it is they go[i] – to relax, recreate, and rejuvenate.

According to the Congressional Calendar, the Senate is scheduled to begin its break on August 6 and to return on September 6, while the House was supposed to have stopped work on July 30 and will be back in session on September 13.[ii] Continue Reading The Schumer-Manchin Proposal To “Eliminate” the Profits Interest

Tax Alchemy?

How many of you remember Section 138509 of the Ways and Means Committee’s markup last September of what would have been the Build Back Better Act? (A moment of silence, please.)  Allow me to jog your memory. Its heading read as follows: “TEMPORARY RULE TO ALLOW CERTAIN S CORPORATIONS TO REORGANIZE AS PARTNERSHIPS WITHOUT TAX.”[i]

“Oh, that Section 138509. Of course.”

Yep. Under the proposal, any corporation that was an S corporation on May 13, 1996[ii] could have been reorganized as a partnership without triggering a tax liability,[iii] provided the corporation transferred substantially all of its assets and liabilities to a domestic partnership during the two-year period beginning on December 31, 2021. Continue Reading S Corps with Real Property: Separating Shareholders & Partnership Envy

“Summertime and the Living” Isn’t Easy[i]

Summer in the New York Metro Area can be challenging. Some would say it sucks.[ii] It gets really hot. When it rains, it pours – no spritz here. The humidity is oppressive.[iii] Ironically, a forecast of sunny days and clear skies that may draw other “subspecies”[iv] of humans out of their dwellings causes many New Yorkers, instead, to remain indoors, whether it be at home, in air-conditioned shops, or at other artificially cooled venues. Continue Reading Leaving New York? Can You Prove It?