Business

My Steadfast Partner, The IRS

If you’ve worked with the owners of closely held businesses for even just a few years, you have realized they are only half joking when they complain about having the government as a partner. Consider how much federal, state, and local tax[i] a business and its owners may pay over to the tax authority of each jurisdiction during the course of a taxable year.

If the business is treated as a partnership for tax purposes,[ii] the IRS is generally authorized to collect from the partnership any income tax deficiency arising out of the partnership’s operations for a taxable year, even if the persons who were partners in the year to which the deficiency relates are no longer partners in the year that the deficiency is assessed.[iii] Stated differently, the partnership’s current-year partners will bear the economic burden of the tax liability even though the tax adjustments relate to a prior year in which the composition of the partnership may have been different, and even though they themselves have satisfied their own tax liabilities.

Continue Reading Not Aware of Your Business Partner’s Tax Situation? Maybe You Should Be

Another “Departure”

During the weeks leading up to the Presidential election, the media carried stories about wealthy supporters from each Party who had announced their intention to leave the country if the other Party’s candidate became President.

Of course, none of these individuals stated they would be giving up their U.S. citizenship or green card,[i] probably because they were aware that such a move (pun intended) would trigger an onerous exit tax.[ii]

Continue Reading Abandoning N.Y. Domicile – Must the Business Owner Abandon Their N.Y. Business?

Decisions, Decisions

The owners of a closely held U.S. business will have to make many difficult decisions during the life of the business. Among the earliest of these is the so-called choice of business entity, the economic (including tax) consequences of which will be felt by the business and its owners for years to come.

Continue Reading Choice of Entity for a U.S. Business- Passthrough Status Matters Beyond the U.S. Border

Enforcement

Earlier this year the IRS announced that, as part of its larger compliance efforts begun last fall under the Inflation Reduction Act,[i] the agency’s stepped-up enforcement activity with respect to high wealth, high income individuals had generated more than $1 billion in collections of past-due taxes.

One would be hard-pressed to seriously dispute that every taxpayer must pay the correct amount of income tax; no more, no less. That means a taxpayer has the right to pay only the amount of tax that is legally due and the right to have the IRS apply all tax payments properly.[ii]

Continue Reading Challenge to Collection Due Process? Will Supreme Court Affirm IRS’s Offset of Valid Refund With Disputed Tax Liability?

As we will see shortly, it is often “better to give than to receive,”[i] though this statement begs the obvious question[ii] of whether it is better to do so during one’s lifetime or upon one’s death.

Many well-to-do individuals are seriously deliberating this question[iii] as they contemplate the impending federal elections and consider how the outcome of these contests may influence their plans for the disposition of various assets, including the transfer of such assets, or the value they represent, among members of such individuals’ families.

Continue Reading Thinking About Making Taxable Gifts Before the 2026 Sunset?

Not So Happy Law

If given their druthers, most transactional corporate attorneys would prefer to spend their day practicing “happy law,” by which they typically mean transactions that involve capital formation, mergers and acquisitions, joint ventures, business restructurings, and other collaborative-type projects in which the parties have clearly delineated goals, there are definite beginning and end points to the project, and the project is expected to be completed within a relatively short time frame.

The odds are pretty good, however, that a transactional lawyer in the so-called “middle market” will, over the course of their career, become involved in several disputes among the shareholders of a closely held corporation.

Continue Reading When A Shareholder Loses Control of Their S Corporation

Match Made in Heaven

There is no denying that many parts of the Code are complex and, in some cases, too obscure for many “laypersons” to comprehend.[ii] Over time, this reality spawned the need for advisers who are both knowledgeable and experienced in the ways of the Code.[iii]

Yet, even within this group of learned individuals,[iv] there are many for whom certain chapters and subchapters of the Code recall the opening of Dante’s Inferno: “I found myself within a forest dark, For the straightforward pathway had been lost.”[v]

Continue Reading Taxing A Foreigner’s Sale of a Partnership Interest – Déjà Vu All Over Again[i]

Anticipation

You may have heard or even read about the U.S. Supreme Court’s recent decision regarding the date of death value[i] of a deceased shareholder’s shares in a closely held corporation that owned a life insurance policy on the decedent’s life, the proceeds of which the corporation used to redeem the decedent’s shares from their estate.[ii]   

The significance of the decision for the shareholders of many closely held corporations is belied by the brevity of the Court’s opinion and the relative absence of any “technical” analysis.[iii]

Continue Reading Funding the Buyout of a Deceased Shareholder With Corporate-Owned Life Insurance – Did the Court Decide Connelly Correctly?

Sale, or Contribution-Distribution?

Assume that X and Y agree to the following: X will transfer ownership of Prop to Y, and Y will transfer cash to X.

What just happened? Obviously, X has sold Prop to Y. If the amount of cash that X receives is greater than his adjusted basis in Prop (generally, his unrecovered investment in the property), then X will realize a taxable gain.

Continue Reading Partnership Transactions Lacking Economic Substance or Business Purpose: Investor Beware

It’s Still Pretty Bad

Depending upon what you read or, perhaps more accurately, depending upon how much you believe of what you read, you may be aware that many closely held businesses are concerned about their future.

Most of these survived the disruption caused by the pandemic lockdown only to be confronted with rising inflation, higher borrowing costs, a scarcity of available workers, the phaseout of COVID-era public support programs, and the potential for increased federal and state tax burdens.

Continue Reading Trust Fund Recovery Penalty & The Closely Held Business