Final regulations were issued last month under IRC Section 336(e). These regulations present beneficial planning opportunities in certain circumstances.

IRC Sec. 453(d). IRC Sec. 336. See below.

e talking about are, to this “funny money” crowd, what a mosquito is to an elephant. I might also add that, almost to a person, these folks expressed their desire to reward their key employees in the event of a sale, and to ensure continued employment for the rest of their workforce.In fact, I can probably count on one hand the number of selling owners we have represented over the years who thought differently.https://www.taxlawforchb.com/2018/05/the-new-york-business-and-changing-domicile-let-it-go-let-it-go/ That includes employees. That’s another upshot of the pandemic. Many businesses have realized they can make due with a smaller workforce.Daichman, v. Commissioner, T.C. Memo. 2020-126. See, e.g., Rev. Rul. 59-60. The Court did not make any findings as to value. In general, S corporations are required to use the calendar year for tax purposes. Reported to him by LP on a Schedule K-1. Form 1040, Schedule E, Part II. Attributable to its liquidating distribution (and deemed sale per IRC Sec. 336) of the value-discounted FLP interests, and passed through to the shareholder under IRC Sec. 1366.Query why there was no mention of the IRS’s standard position in estate/gift tax matters that interests in a partnership funded with marketable securities did not merit much in the way of valuation discounts.Query also why there was no discussion of the Pope & Talbot decision, 162 F.3d 1236 (9th Cir. 1999), where a corporation made a non-liquidating distribution of limited partnership interests in a single partnership to its shareholders. The corporation had valued each partnership unit as a minority interest (a discounted value). The court disagreed. The units had to be valued (for purposes of IRC Sec. 311) as if sold in their entirety, as one; otherwise, the FMV of the underlying assets would not be accurately reflected.Finally, query why no mention was made of IRC Sec. 336(d), which denies loss recognition to a liquidating corporation on certain distributions to related persons. On For

ame holds true for trusts and estates. IRC Sec. 1(h).This should be compared to the sale of partnership interests. Although generally treated as the sale of a capital asset, the gain will be treated as ordinary income to the extent the purchase price for the interest is attributable to so-called “hot assets.” IRC Sec. 741 and Sec. 751.If the selling shareholder did not materially participate in the business of the corporation, the federal surtax of 3.8-percent of net investment income will also apply to the gain. IRC Sec. 1411. Congress recognized that there are circumstances in which the buyer has a bona fide business (non-tax) reason to acquire the stock of a target corporation. In some such cases, Congress decided it would be improper for the buyer to give up its ability to recover its purchase price for tax purposes; i.e., to have to choose between good business decision and a tax benefit. The result was the elections discussed below. IRC Sec. 338(h)(10); Reg. Sec. 1.338(h)(10)-1. IRC Sec. 336(e); Reg. Sec. 1.336-1 through -5. It should be noted, if the buyer of the target’s stock does not want the sellers to make a Sec. 336(e) election, it should include a prohibition of such an election in the stock purchase agreement; specifically, a covenant not to make the election. You’ll recall that the character of the gain – for example, ordinary income from the sale of receivables, or depreciation recapture from the sale of machinery – passes through to the target S corporation’s shareholders. The maximum federal tax rate for ordinary income included in the gross income of an individual is 37-percent. IRC Sec. 1374. IRC Sec. 331; Sec. 1371. The gross-up amount paid by the buyer will end up being allocated to the target’s goodwill and going concern value, and will be amortizable over 15 years under IRC Sec. 197. IRS Form 2553. Presumably, counsel did not prepare or file the second amendment. Within the meaning of IRC Sec. 1362(f). Assuming that Corp met all of the other requirements f

of such excess. IRC Sec. 754, Sec. 734(b) and Sec. 732(a)(2). Think IRC Sec. 267(d). IRC 461(l). It is currently set to expire after 2028. The top rate before 2018 was 35%. This addresses two scenarios that may apply to an S corporation that was previously a C corporation or that acquired a C corporation on a tax-free basis. IRC Sec. 1374. IRC Sec. 11. IRC Sec. 1375. Until now, this limitation on deduction applied only to publicly held corporations and only with respect to payments made to certain individual employees. Certain types of compensation are not subject to the deduction disallowance and are not taken into account in determining whether other compensation exceeds $1 million, including (a) payments made to a tax-favored retirement plan, and (b) amounts that are excludable from the employee’s gross income, such as employer-provided health benefits and miscellaneous fringe benefits. The corporation would recognize the loss on the deemed sale of the distributed properties under IRC Sec. 336, and the shareholder would recognize loss in respect of its shares of stock in the liquidating corporation under IRC Sec. 331. For the meaning of a “controlled group,” see IRC Sec. 1563(a) but apply a 50% ownership threshold. See IRC Sec. 267(f) by analogy. You may recall that, after 2017, only exchanges of real property could qualify for tax deferral under IRC Sec. 1031. Basically, Section 1250 property. We’re expected to run a $1.6 trillion deficit for the 2024 fiscal year, ending September 30, 2024. https://www.crfb.org/papers/analysis-cbos-march-2024-long-term-budget-outlook . By some accounts, it is expected that interest payments will soon exceed defense spending. China being the principal threat to our security and one of our largest trading “partners.” Each of these countries holds approximately $1 trillion of U.S. debt. For example, why are we paying to fly illegal aliens all over the country? Why are we housing and feeding them? This is not intended as a criticism. It is mer

be treated as an association (taxable as a corporation), and is treated as a partnership. Reg. Sec. 301.7701-3. For example, some more senior, or preferred, as to others. Of course, special allocations must have substantial economic effect. IRC Sec. 704(b). At a top federal income tax rate for individuals of 37% with respect to ordinary income, and a top rate of 20% with respect to long-term capital gain. IRC Sec. 1. As part of the Tax Cuts and Jobs Act (Pub. L. 115-97). Instead of the graduated rates that applied previously, including a top marginal rate of 35% that was applicable for taxable income in excess of $75,000. IRC Sec. 11. Monty Python anyone?https://www.irs.gov/pub/irs-pdf/p16.pdf. Such a conversion, however accomplished, will require the actual or deemed liquidation of the S corporation for tax purposes, as a result of which the S corporation will be treated as having sold its assets, the gain from which would be reported by its shareholders on their individual returns. IRC Sec. 336 and 1366. It’s also possible that the shareholders will have gain on the deemed liquidation of their equity in the corporation. IRC Sec. 331. IRC Sec. 1362. At least until someone in our dysfunctional government decides to change the law. Anyone remember the provision in the Administration’s Build Back Better proposal that would have allowed the tax-free conversion of an S corporation into an LLC that was not treated as a corporation. As I recall, it was eliminated in the House Rules Committee. CCA is written advice or instruction prepared by any National Office component of the Office of Chief Counsel that is issued to Field or Service Center employees of the Service or Field employees of the Office of Chief Counsel, and conveys any legal interpretation of a revenue provision, any Service or Office of Chief Counsel position or policy concerning a revenue provision, or any legal interpretation of State law, foreign law, or other Federal law relating to the assessment or collection of

The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the Firm. It should go without saying that the “conversion” of an entity that is treated as a corporation for tax purposes into one that is treated as a partnership is treated as a liquidating distribution – a deemed sale under IRC Sec. 336 – by the corporation of its assets and liabilities to its shareholders followed immediately by the shareholders’ contribution of such assets (with a stepped-up basis) and liabilities to a newly formed partnership.By avoiding the recognition of gain from the deemed sale of the property, the proposal also would have prevented the application of IRC Sec. 1239, pursuant to which some or all of the gain recognized from the sale of property that would have been depreciable in the hands of the shareholders may have been treated as ordinary income.

See34 Tex. Admin. Code 3.594(c)(3) (Margin: Temporary Credit for Business Loss Carryforwards). In this connection, the Comptroller found that nothing in the Texas franchise tax obligates Texas to recognize federal tax elections under 26 U.S.C. § 336(e) (Gain or loss recognized on property distributed in complete liquidation).Comptroller’s Decision No. 116,701, 116,702, 116,703, and 116,704 (2022)—The administrative law judge determined that retirement benefits costs paid by a member of a combined group after that member had ceased acquiring or producing goods couldn’t be included in the combined group’s cost of goods sold, even though other members continued to be involved in the acquisition and production of goods.Motor Vehicle Sales, Rental, and Use TaxStandard Presumptive ValueComptroller’s Decision No. 116,846 (2022)—The administrative law judge found that a taxpayer who ran a used-car dealership that was permitted for seller-financed motor vehicles sales tax owed tax on the sale of vehicles having a standard presumptive value greater than the price for which the vehicles were reportedly sold.

ner of the stock for purposes of determining the income tax consequences from the disposition of the stock by the trust. Treas. Reg. Sec. 1.1361-1(j)(6). IRC Sec. 1361(c)(2)(A). Treas. Reg. Sec. 1.1361-1(j)(6)(iii). IRC Sec. 1374 imposes a corporate-level tax on certain S corporations. Let’s assume that the sale occurs before the enactment of the Build Back Better bill, and that every shareholder is a material participant in the business. Thus, the 3.8 percent surtax on net investment income will not apply. IRC Sec. 1411. 20 percent capital gains rate on the liquidating distribution plus 3.8 percent surtax on net investment income. There is an exception under current law when the selling shareholder of S corporation stock was a material participant in the corporation’s business – the gain recognized by such a selling shareholder is not subject to the 3.8 percent surtax. IRC Sec. 1411(c)(4). Or if the selling shareholders had agreed with the buyer that they would make an election under IRC Sec. 336(e). There are many reasons a buyer may want to acquire a target’s equity rather than its assets; for example, there may be difficult-to-transfer assets, or it may be important to the buyer that the target’s EIN be preserved. Treas. Reg. Sec. 1.338(h)(10)-1.Of course, the buyer may be just as surprised at having acquired a taxable corporation that had not paid its income tax for several years. In that case, the buyer will exercise its rights under the sale agreement to compel the seller to indemnify the buyer for any pre-sale tax liabilities of the corporation. That said, the filing of the S corporation tax return (instead of a C corporation return) for a particular year should usually suffice to start the running of the limitations period on the assessment of corporate level tax. IRC Sec. 6501. IRC Sec. 368(a)(1)(F). https://www.taxslaw.com/2021/11/selling-to-private-equity-maybe-you-should-f-reorg-first/. Did you think I was going to say something else? I confess, I started to. IRC Sec.

Indeed, two of our transactions require a rollover of 25 percent and 30 percent of the target’s equity, with the PEF purchasing the balance. IRC Sec. 336(e) and Sec. 338(h)(10). It is often, if not usually, the case that the purchaser will gross up the purchase price to compensate the selling shareholders for tax on any ordinary income that may be realized on the deemed sale of assets; for example, from depreciation recapture under IRC Sec. 1245.