Mergers, Reorganizations, Recapitalizations
The IRC regarding recapitalizations and reorganizations are some of the most powerful and misunderstood Code sections available to a professional in solving client tax problems. Great things can be done with these Code sections and regulations. The “Big Boys” understand the power and use it constantly, and the benefits are no less advantageous to smaller taxpayers. Lack of knowledge and understanding of an enormously complicated tax area keeps the faint of heart away. I had two courses in graduate tax school devoted solely to these issues and can assist in using these methods to a client’s circumstances as warranted.
Every entity that is born must someday die, and the tax consequences can be beneficial or they can be expensive. Liquidation is one of many
avenues to deal with a corporate entity that has outlived its usefulness, and where appropriate, may prove to have attractive tax advantages.
Burying undesired tax attributes while disposing of liability issues is an example of liquidation planning.
What about liquidation/reincorporation issues? When can the IRS resurrect the worse aspects of a defunct company and hang that albatross around the new company’s neck? ( It happens more often than you would think.)
What about section 1244 ordinary loss provisions? How do you arrange your affairs to obtain an ordinary loss?
Split offs, Spin offs and Split ups
No, we’re not talking about divorce, or sending the kids off to college.
Change is the essence of business, and the financial format that worked in the past may no longer be best. How do you restructure to bring in a new partner, or transfer a portion of the business, or transfer the business from one generation to another? Split offs, spin offs and spilt ups are all powerful tools to better align the business in a new and more effective way with the financial needs of the future. Business formation and status must remain flexible and adaptable to survive in a constantly changing world.
What if you want to reward an up and coming executive, and allow them to share in the rewards they helped create without giving away the
business that they did not create? The 3 “S’s” are very powerful tax tools to allow businesses to change tax free into new and more accountable divisions.
Surviving Tax Attributes in reorganizations
Tax attributes are past decisions, for example, your accounting method – cash or accrual, and sometimes they can be elective, and sometimes
not. As times change, a direction from the past may be help or a hindrance, and it is not uncommon to have a host of attributes some of which you want to retain, others you want to discard. Tax attributes are tenacious devils, and usually the very ones you want to shed are the ones that cling the hardest.
Consolidates and Affiliated Returns
The benefits of consolidated returns are just as applicable to smaller taxpayers as they are the “Big Boys.” The use of losses from one company against the income of another can pay enormous benefits.
When is a like-kind exchange appropriate? Just what assets are “like kind” and how far can you push it? Are there any other means of accomplishing a tax free or tax deferred exchange, and do they have any tax or financial attributes that are more advantageous than a
like-kind exchange? Just what are the real costs of the like-kind exchange, and net after tax, how is the taxpayer coming out?
Like-kind exchanges are great, but often the practitioner or client who does not routinely handle them is afraid of them, when it may be a
great solution to the problem. Conversely, I have seen like-kind exchanges that the after tax and expense cost was greater to the client than
another means of selling the property. Sometimes the motivation for the exchange benefits some of the intermediaries to the exchange more than the clients. Careful and knowledgeable analysis of a proposed exchange needs to be made before proceeding.
Often I provide the initial , informal advice that “this would work” when the exchange is first proposed. Later, I can assist taxpayers and
practitioners alike by providing the formal tax opinions as to probable outcome of IRS examination of the proposed transaction (“more likely than not” opinion.) In addition, I can review the transaction as a whole for tax and financial effectiveness, as I am independent of the transaction, and will not benefit or suffer if the transaction proceeds or not.
LLC’s are rapidly becoming the entity of choice, and used properly, rightly so. An LLC provides liability protection and enormous flexibility for tax and financial issues. LLC’s can also produce unexpected and undesired results. Click Here For More Details.
Form 3115 Fixes
Although “change in accounting method” is the title of form 3115, a wonderful assortment of benefits can be obtained for the taxpayer using this method. Some examples I have used to great benefit:
- Amortization of purchased goodwill omitted from returns.
- Change from cash method to accrual, where liabilities exceeded assets, and a huge current deduction was available.
- Depreciation Omitted from original returns was “caught up” in the year of change, permitting a huge one time deduction.
Estates & Trusts
Although I prepare estate tax returns, the majority of the work I do in the estate area relates to the income tax implications of death. Most people know that a taxpayer gets a “step-up” in basis to fair market value in assets held at the date of death. Taking advantage of this simple taxprovision will make huge differences in the income tax costs of holding and depreciating an inherited asset or gain from eventual sale.
Legacy planning often includes business succession planning. How can this generation transfer business assets to the next generation of owners while protecting other heirs who are not in the business?