Business

Abusing Partnerships?

I am certain that most of you have encountered at least one unscrupulous “advisor” who tried to convince you or your client to take advantage of what they described as a perfectly legal “loophole” in the Code that could generate significant tax savings.[i]  

Over the years, many of these aggressive tax “planning” strategies have utilized the partnership form of business entity[ii] to claim the “as advertised” tax benefits but without demonstrating any independent business or investment purpose for the partnership.Continue Reading Determining Whether a “Partnership” Should Be Respected For Tax Purposes

LLCs Run Through It

What do you think of when someone mentions Montana? Is it the seemingly boundless landscape from which the largest land-locked state[i] derived its nickname, Big Sky Country?[ii] What about its Rocky Mountain national parks, like Glacier or Yellowstone?[iii]

Until recently, I had always equated Montana with rugged landscapes, honest outdoor living,[iv] flyfishing,[v] and my grandfather.[vi]

Of late, however, Montana, or more accurately, the use of Montana LLCs, has become synonymous with sales tax avoidance (or worse).Continue Reading Sales Tax Savings With Montana LLCs? Don’t Do It

From Taxable to Tax-Exempt Corp

Travel back with me to 1986, if you will, and the repeal of the General Utilities doctrine. The Tax Reform Act of 1986[i] added Sec. 337(d) to the Code and directed the Treasury to prescribe the regulations necessary to carry out the purposes of the doctrine’s repeal.[ii]

The Technical and Miscellaneous Revenue Act of 1988 amended Sec. 337(d) to specify that the section authorizes regulations to “ensure that these purposes shall not be circumvented * * * through the use of a * * * tax-exempt entity.” Continue Reading Converting a Taxable Corp Into a Tax-Exempt Entity Via a Bargain Sale – or is it Something More?

Tax Deficiency

Over their career, every tax practitioner has had many client-taxpayers against whom a government’s taxing authority – be it federal, state, or local – has asserted and then assessed a tax deficiency.

There are many reasons why a taxpayer – whether an individual, corporation, partnership, estate or trust – has unpaid tax liabilities. For example, the taxpayer has: miscalculated the amount of tax owed, carelessly omitted an item of income, mistakenly deducted a non-deductible expense, or claimed a tax treatment for an item on their tax return with which the government disagreed.Continue Reading Applying the Federal Priority Statute to The Attorney as Client’s “Corporate Executive”

Non-Recognition Exchanges

Under the Code and the Regulations issued thereunder, the gain or loss arising from the conversion of property into cash is treated as income realized or as loss sustained by the owner of the converted property,[i] which the owner must generally account for in determining their federal income tax liability for the year of the conversion.[ii]

Likewise, the gain or loss arising from a property owner’s exchange of such property for other property that differs “materially in kind” from the property exchanged should, as in the case of a sale for cash, be treated as a taxable event, the gain or loss from which must be accounted for in determining the owner’s gross income for the year of the exchange.[iii] Continue Reading Tax-free Conversion of Corporation Into Partnership Via “C” Reorganization

Tax Savings and Deal Economics

It is a basic tax principle that the more (or the sooner) a seller pays in taxes on the sale of its business, the less will be the economic benefit the seller realizes from the sale. Similarly, the fewer the tax savings that the buyer realizes from the acquisition of the business, the less will be the economic benefit the buyer realizes from the acquisition.[i]

Allocation of Purchase Price

In most cases, these “truths” are first considered in determining the form of the transaction – a purchase and sale of assets or of stock. They become prominent again in the context of allocating the consideration[ii] actually, or deemed to have been,[iii] paid and received for the actual or deemed purchase and sale of the assets comprising the business.Continue Reading When a Buyer’s “Tax Cost” for an Acquisition Exceeds Expectations

The Nonprofit Sector

According to a report released earlier this year by the Federal Reserve Bank of Richmond, nonprofit organizations contribute more than 5 percent of the nation’s GDP and account for almost 10 percent of “private sector” employment.[i]

Those are impressive statistics and, understandably, may be interpreted as characteristic of an industry that constitutes a significant economic driver, at least until one realizes the significant “public” source of the nonprofit sector’s revenues.Continue Reading OBBBA and the Self-Imposed Tax Known as Charitable Giving

It’s not at all unusual to encounter the owner of a New York business who dreams about leaving the State. The reasons often given for the desired move include, among others, the cost of doing business in New York, the State’s over-regulation of business and, probably most of all, its hostile tax environment.[i]

Lately, however, many more New Yorkers are talking about leaving the State. When you ask them why, they’ll recite a litany of familiar reasons, including those mentioned above. Generally, they seem sincere when they tell you they’re committed to doing whatever it takes to make a new home elsewhere.[ii] That is until you explain that “whatever it takes”[iii] requires (i) a lot of patience which, it turns out, many of these individuals do not have, (ii) a lot of effort, which they are unwilling to invest, and (iii) some sacrifice, which . . . well, forget about that.

A recent decision of New York’s Tax Appeals Tribunal[iv] illustrates one couple’s attempt at leaving the State. The Taxpayers (Husband and Wife) implemented many of the steps that must typically be taken to establish a change of domicile away from New York. Unfortunately for them, they were premature in thinking they had succeeded in doing so. Their missteps may serve as a lesson for others who genuinely aspire to one day describe themselves as “former New Yorkers.”[v]Continue Reading Escape from New York – It’s Not That Easy

Change May Be Good

The enactment earlier this year of the One Big Beautiful Bill Act (the “Act”)[i] generated a fair amount of excitement in the business community.[ii]

If one had to identify a single provision of the Act in which the owners and prospective owners of start-up and emerging businesses have expressed particular interest, the amendment of the Code’s gain-exclusion rule for the sale or exchange of stock of a qualified small business[iii] may be the one most frequently mentioned.Continue Reading Qualified Small Business Stock – Be Mindful of the ‘Acquisition Dates’ When Applying OBBBA’s Enhanced Gain Exclusion Rule