Tax & Sports Update

Choosing the Right Business Vehicle: An Automotive Analogy

Posted by Joseph B. Darby III on Sep 16, 2015 9:05:00 AM

car.jpgWe live in the Era of the Limited Liability Company (LLC).

The LLC has become the dominant business vehicle of the early 21st Century:  It is the “must use” vehicle for all real estate transactions, and an increasingly popular choice for operating a commercial business as well.

How did this come to pass? The short answer is that the LLC is the most flexible business vehicle available. It is not the perfect choice for every situation, but it is the best choice for a majority of situations these days, and its use is likely to continue to burgeon for several reasons, all of which are most easily explained using automotive vehicular metaphors.

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Topics: Tax Law, S Corporation, LLC, Limited Partnership

Investing in a Professional Corporation

Posted by Joseph B. Darby III on May 12, 2015 2:47:00 PM

Meeting.jpgA “professional corporation” in Massachusetts is a legal entity formed under M.G.L. Ch. 156A, and is intended for the conduct of various professions that are subject to state licensure. In recent years, most or all of the regulated professions have also authorized the use of an  LLC as a legal entity through which persons can conduct professional activities (this is typically referred to as Professional LLC or PLLC).

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Topics: Professional Corporation, Professional LLC, S Election, Tax Law, S Corporation

Liquidating an S Corporation in Same Year as an Asset Sale

Posted by Joseph B. Darby III on Apr 23, 2015 1:24:00 PM

stock.jpg

The Problem

An S corporation is often configured such that the S shareholders’ “outside” tax basis in their shares is greater (often by a lot) than the S corporation’s “inside” tax basis in its assets. For example, if the S corporation stock passes through an estate, or if there has been a stock purchase for fair market value at a time when the stock had increased significantly in value compared to the tax basis in the underlying assets, outside tax basis can easily be substantially higher than inside tax basis.

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Topics: Tax Law, S Corporation

Thoughts on How to Buy Out a 50% Interest in an S Corporation

Posted by Joseph B. Darby III on Apr 16, 2015 2:43:00 PM

split.pngAssume an S corporation is owned 50-50 by two individuals, and one wants to buy out the other. This transaction will not come within the scope of the transactions where a § 338(h)(10) or §336(e) election will be applicable, so there is no “easy” path to get (mostly) capital gain to the seller and a full step-up in tax basis to the buyer. The question, therefore, is how best to implement this acquisition in a “tax efficient” manner.

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Topics: Tax Law, S Corporation

S Corporation - When Should You Keep the S Corporation Alive After an Asset Sale?

Posted by Joseph B. Darby III on Apr 16, 2015 2:36:00 PM

dollarsign.jpgThe Situation

In contrast to the situation discussed in another blog post where, immediately after an asset sale, the S corporation's inside tax basis is greater than the shareholders outside tax basis, an entirely different tax strategy may make sense if the tax basis relationship is reversed — i.e., when the inside tax basis is higher than the outside tax basis.

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Topics: Tax Law, Partnership Tax, S Corporation

Converting an S Corporation into an LLC Tax Free! – The Drop-Down Transaction

Posted by Joseph B. Darby III on Mar 19, 2015 10:44:00 AM

LLC.jpgAssume an S corporation is owned 50-50 by two individuals, and one wants to buy out the other. This transaction will not come within the scope of the transactions where a § 338(h)(10) or §336(e) election will be applicable, so there is no “easy” path to get (mostly) capital gain to the seller and a full step-up in tax basis to the buyer. The question, therefore, is how best to implement this acquisition in a “tax efficient” manner.

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Topics: Corporate Tax, Tax Law, Partnership Tax, S Corporation

The Holy Grail: How to Get Inside Tax Basis When Buying S Stock

Posted by Joseph B. Darby III on Mar 5, 2015 11:00:00 AM

holygrail.jpgOne of the important differences between an S corporation and a partnership, and one of the drawbacks to choosing S corporation status, is the fact that if a partnership makes a § 754 election, then a purchaser of an interest in the partnership can receive the equivalent of a step-up in “inside” tax basis (meaning the tax basis of partnership assets in the hands of the partnership) and thereafter enjoy enhanced amortization or depreciation deductions.

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Topics: Corporate Tax, Tax Law, Partnership Tax, S Corporation

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The Tax & Sports Update provides timely updates and cutting-edge commentary on all issues affecting U.S. taxation, and, of course, an always humorous take on sports!

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