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Debt vs. Equity: Form & Substance Matter

Some lessons need to be repeated until learned. It’s a basic rule of life. Don’t tug on Superman’s cape; don’t spit into the wind; don’t pull the mask off that old Lone Ranger; and if you are going to make a loan, give it the...more

Liquidating A Partnership Interest? Beware The Effects Of Partnership Indebtedness

Setting the Stage- Over the last couple of months, I’ve encountered several situations involving the liquidation of a partner’s interest in a partnership. Years before, the partnership had borrowed money from a third party...more

Withdrawing Your Business From New York? Did You Pay The Exit Tax?

Departing Individuals- Many of you may know that an individual who changes his status from New York (“NY”) resident to nonresident is required to accrue to the period of his NY residence – i.e., include in his final NY tax...more

Relief For Late Partnership Filings

Oops?- Are you a member of a partnership or of a limited liability company that is treated as a partnership for tax purposes (a “partnership”)? Did your partnership file its 2016 tax return late this year? How about K-1s?...more

“S” Corporation Status, For An LLC?

Choice of Entity- One of the first decisions – and certainly among the most important – that the owner of a new business must make is the form of legal entity through which the business will be operated. This seemingly...more

Taxpayers Bear The Tax Consequences Of Business Decisions

It is a basic precept of the tax law that the substance of a transaction, rather than its form, should determine its tax consequences when the form of the transaction does not coincide with its economic reality. This...more

When A Partner May Not Be Acting As A Partner

It is not uncommon for a partner to engage in a business transaction with a partnership of which he is a member. If the partner engages in a transaction with his partnership other than in his capacity as a partner, he will be...more

Controlled Foreign Corporation: Neither A Lender, Guarantor, Nor Pledgor Be?

Last week, we considered the U.S. taxation of a closely held foreign corporation that owned a minority interest in a partnership that was engaged in business in the U.S. This week, we turn our sights to the U.S. taxation of a...more

Foreigner’s Sale of Partnership Interest: Not Taxable

Coming to America- Whether they are acquiring an interest in U.S. real property or in a U.S. operating company, foreigners seek to structure their U.S. investments in a tax-efficient manner, so as to reduce their U.S....more

Reorganization Of Insolvent Corporations: Has A New Day Dawned? Nope

Withdrawal of Proposed Regulations- Earlier this year, the President directed the Secretary of the Treasury to review all “significant tax regulations” issued on or after January 1, 2016, and to take steps to alleviate the...more

Employee Loan Or Compensation?

Everyone recognizes the importance of debt financing to a business. The business needs liquidity to purchase or improve assets, or to pay expenses. It borrows the necessary funds from an institutional lender that requires...more

Sale Of A Contract: Capital Gain Or Ordinary Income?

Maximize Capital Gain- In the sale of a business, it is the goal of every business owner and his tax adviser to minimize the amount of gain realized and, to the extent gain is realized, to maximize the amount that is...more

“Abandonment Of A Partnership Interest,” Or “When A Taxpayer Rejects Its Tax Return Position”

“Disposing” of a Partnership Interest- If the amount realized by a taxpayer upon the sale of a partnership interest to a third party is insufficient to restore to the taxpayer his adjusted basis for the interest – i.e.,...more

Deducting Payments Between Related Parties

Potential for Abuse- Many years ago, Congress decided that taxpayers who were “related” to one another should be required to use the same accounting method with respect to transactions between them in order to prevent the...more

6/26/2017  /  ESOP , GAAP , Income Taxes , IRS , S-Corporation

Unreasonable Compensation & The Family Business

“Add-Backs”- In the course of valuing a target business, a potential buyer will want to develop an accurate picture of the target’s earnings and cash flow. In doing so, the buyer will try to normalize those earnings by...more

Self-Employment Tax, LLCs, & The “Limited Partner” Exclusion

In general, self-employed individuals are subject to employment taxes on their net earnings. The wages paid to individuals who are non-owner-employees of a business are also subject to employment taxes, regardless of how...more

“Tax-Free” Exchanges May Not Be Free of Tax

Business owners love to hear the words “tax-free” when considering the disposition of business assets. Unfortunately, many fail to grasp that a tax-free disposition is rarely free of tax in the sense of never being taxed;...more

Contributing Encumbered Assets: Partnership Disguised Sale Rules

Many of our posts this year have considered some of the unique issues that are presented by a partner’s contribution of property to a partnership, including the application of the “disguised sale” rules. Today, we will...more

Restricted Stock & Employee-Shareholders

Close Corporations and Compensatory Grants of Equity- It should come as no surprise to readers of this blog that I am not enamored with the notion of issuing equity to employees of a closely-held business. It’s not that...more

5/31/2017  /  ESOP , IRS , S-Corporation , Shareholders

Guidance For North-South Spinoffs

The IRS continues to issue guidance in the much debated area of corporate spinoffs. A recently published ruling examined the federal income tax treatment of the two steps that comprise a so-called “north-south” transaction.”...more

Why Care About Business Valuation? Part II

Valuations figure prominently in determining the proper tax treatment of transactions – such as sales, loans, leases, and performance of services – between related taxpayers, including, for example, commonly-controlled...more

Why Care About Business Valuation? Part I

One word: “taxes.” There are so many transactions in which the tax consequences visited upon a closely-held business and its owners, and, therefore the true economic cost of the transaction, will depend upon the valuation of...more

Paying The Estate Tax

An Unreasonable Burden? One of the reasons often given in support of the elimination of the estate tax is the economic burden it imposes upon the closely-held business; specifically, the requirement that the 40% federal...more

S-Corps, Basis & Loss Limitations

In General- It is a basic principle of federal tax law that a taxpayer cannot, for purposes of determining the taxpayer’s taxable income, claim a loss with respect to an investment in excess of the taxpayer’s unrecovered...more

Beyond Purchase Price: The Tax Treatment of M&A Deal Costs

Recovering Transaction Costs - It is a basic tax principle that the more a seller pays in taxes on the sale of its business, the lower will be the economic benefit realized on the sale; similarly, the more slowly that a...more

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