The tax consequence of a transaction often depends on how one characterizes or describes the transaction. Business synergies are often cited as the rationale for merger and acquisition deals. In a M&A deal, are “business synergies” a separate asset for tax purposes? Can you list “business synergies” as a separate asset and then take a…
Category: Tax
Tax
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Big Tax Savings With ESOP, But Requires Work
An employee stock ownership plan (ESOP) can produce significant income tax savings. This tax savings isn’t exactly free. One has to keep up with the ESOP and the relevant rules to ensure that the tax savings are achieved. This compliance work is required and failure to comply can be costly. The recent Ed Thielking v.…
Tax Planning for the Start-up Limitation Rules
Our tax laws include start-up rules that limit the ability to deduct certain business and investment expenses. For business owners and investors with other sources of income, this can result in funds being sent to the IRS to pay taxes at a time when the capital is needed to fund the business or investment growth.…
Loan to an S Corporation to Allow Tax Loss
Tax basis can limit a shareholder’s loss from an S corporation. If an S corporation has a tax loss but the shareholder doesn’t have sufficient tax basis to take the loss, the shareholder will typically have to loan money to the S corporation. This tax debt basis makes the loss allowable in the current year.…
Tax on Payment for Being Born With Medical Condition
We can do some amazing things given the state of our science and technology. These advances lead to some interesting tax questions. The IRS recently addressed such a question in PLR 201950004. It considers whether damages paid by a fertility clinic for failing to perform a genetic test are excluded from the recipient’s income as…
Installment Sale Treatment for Mobile Home Trailers
If you buy, subdivide and sell real estate, can you seller-finance the sales and report the gain using the installment sale method? The installment sale method can defer paying tax on the sales by allowing you to recognize the gain in later tax years. As the court in the Joyner Family Limited Partnership v. Commissioner,…
Bad Debt Tax Deduction for Guarantee Payment?
When an individual or company guarantees a loan for a third party, they are essentially agreeing to assume responsibility for the debt if the borrower defaults on their payments. In some cases, the guarantor may be required to make payments to the lender on behalf of the borrower. But what happens when the guarantor has…
Foreign Trust Beneficiary Liable for a Double Tax Penalty?
Can the sole owner of a foreign trust who is also its sole beneficiary be penalized twice for not filing a single Form 3520? Can the IRS choose the higher penalty for the beneficiary in this situation? In Wilson v. United States, No. 19-cv-5037 (BMC) (E.D.N.Y. 2019), the IRS argued that it could impose pick…
Sale of Long-Term Service Contracts: Capital or Ordinary Gain?
If a taxpayer sells a business that owns long-term service contracts, is the gain attributable to the contracts subject to tax at ordinary or capital gains rates? The IRS’s recent action on decision for the Greenteam Materials Recovery Facility PN v. Commissioner, T.C. Memo. 2017-122 court case deals with this in the context of a…
The IRS Recent Focus on S Corp Owners
The IRS has announced several new compliance campaigns focusing on S corporations. This is needed as the audit rate for S corporation is extremely low. The most recent IRS compliance campaign focuses on shareholder stock basis issues for S corporation owners. Those who have significant S corporation losses or large distributions should take time to…