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. Now assume Y is a partnership. X transfers Prop to Y in exchange for a partnership interest in Y. The exchange is not taxable to either X or Y.[i] What if Y also transfers cash to X, whether simultaneously with the issuanc ..read more

Notice of Deficiency Over the years, I have observed there is only one thing that a taxpayer fears more than being notified by the IRS that their income tax return for a particular taxable year has been selected for audit, and that is being notified that the IRS has determined the taxpayer owes additional tax,[i] plus interest[ii] and penalties,[iii]  for such year. A taxpayer who has received a timely[iv] notice of deficiency[v] is generally presented with three basic options: agree with the IRS’s adjustments and pay the additional tax plus interest;[vi] pay the amount shown on the noti ..read more

Tax Season As we approach the deadline for paying federal individual income taxes and, generally, for filing the returns on which such taxes are determined, some of you may be recalling how the Inflation Reduction Act of 2022 appropriated billions of dollars[i] to the IRS to bolster enforcement of the Code, including hiring more enforcement agents, providing legal support, and investing in “investigative technology.” No doubt, most of you are aware that, for several months now, the IRS has taken every opportunity to remind tax advisers, and the public generally,[ii] that the agency will be foc ..read more

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. Add to these already daunting challenges the prospect of a destabilized society and an ever mor ..read more

Last week, Sen. Warren reintroduced her “Ultra-Millionaires” wealth tax proposal to the Senate.[i] Query her timing. The measure has the proverbial snowball’s chance in Hell of being enacted by this Congress.[ii] Perhaps the Senator was inspired by the Administration’s Fiscal Year 2025 Budget, which includes its own equally ill-fated – at least for now – version of a wealth tax.[iii]    The more likely explanation for the revival of the Senator’s tax plan is the upcoming contest for the White House, which has begun in earnest,[iv] and the Administration’s focus on what it has describ ..read more

The Budget is Here![i] Earlier this week the White House released its Fiscal Year 2025 Budget.[ii] Of course, the federal government has not yet adopted a budget for the Fiscal Year 2024 even as we approach that year’s halfway mark. But I digress. The release of the budget comes four days after the State of the Union and only one day after the Oscar ceremonies.[iii] It seems appropriate that these three events should follow one another in relatively close succession considering each provides an opportunity for varying degrees of staging, theatrics, arrogance, and storytelling.[iv] Indeed, in i ..read more

Can It Be Undone? How many times have you wished that you could undo something from your past, perhaps a string of incoherent statements made at a client dinner while slightly under the influence, or an expletive-filled email composed and sent in anger?[i] Often enough, right? I’m certain that those among you who are business owners can probably recall several things that you have done over the years that you regretted at the time, but from which you learned the proverbial lesson.[ii] Still, there are probably moments you wish you could unwind the event or statement in question. What if I told ..read more

Crossing the Streams[i] It is not uncommon, in the context of a business entity in which a family owns a controlling or substantial interest, for an adviser to encounter intersecting gift and income tax issues. This week’s post will consider one such instance in which the IRS was asked to determine the tax consequences of certain transfers of stock by an individual shareholder of the issuing corporation and by the trusts created for the benefit of the shareholder’s family.[ii]   Before describing these transactions, it may be helpful to briefly review some of the applicable tax principles ..read more

What Corporate Shield? Would you be surprised to learn that most shareholders of closely held corporations, and especially those with minority or merely passive interests, believe they cannot be held responsible for the tax obligations of their corporations? I, for one, would not. Over the years, I have both experienced and read about many situations in which shareholders realized too late that the “limited liability” protection the corporate shield affords them under a state’s business corporation law goes only so far, even in cases where the corporation is respected as a separate legal entit ..read more

Passing the Torch Many of us have encountered variations of the following scenario:  a parent owns and operates a business; one or more of their children are employed in the business; as the children mature and become more experienced and established in the business, some of them may want to assume greater managerial responsibility and to have a greater voice in strategic planning; inevitably, the children become eager to realize a greater share of the economic success enjoyed by the business which they may insist is attributable to their efforts; they want to become owners.[i] A recent d ..read more