2016 Tax Update Examples

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Alan Flynn
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1 2016 Tax Update Examples New Legislation March 15 April 15 July 31 Sept 15 Sept 30 Oct 15 Nov 15 P/S S corp C Corp 6 Mos. 5 Mos. Trust Indiv FBAR 5.5 Mos. Probably 6 Mos. 2.5 Mos A 1

New Slide S Corp Stock Sale A/B FMV Gain Cash $ 100 $ 100 Receivables 200 200 Inventory 150 150 Securities 30 50 0 0 0 20 Acct Pay $ 50 Note Pay 175 Total Liab.

2 New Slide S Corp Stock Sale A/B FMV Gain Cash $ 100 $ 100 Receivables Inventory Securities Acct Pay $ 50 Note Pay 175 Total Liab. $ 225 Equipment Goodwill Total 480 1, Purchase Price $ A C Corporation C Corp. C Corp. C Corp. 100% 50% 50% 0% 100% Single Owner OK not a group Unrelated Penalty 127B H & W Penalty 2

3 S Corporation S Corp S Corp S Corp 100% 50% 50% 0% 100% Single Owner OK not a group Unrelated 2% Exception 127C H & W Exception? S Corporation S Corp S Corp 30% 40% 30% 50% 50% 0% Unrelated 2% Exception 127D Unrelated Penalty 3

4 Assume H under W s Plan If paid after tax, then H s employer may reimburse before tax. 171A Example Deduction 股份制公司 Corporation W 2 Income 179A 4

5 IRA Ownership C Corp. S Corp. LLC Probably 183A Prohibited Transactions C Corp. LLC What about an imputed salary? Practical Aspects? Guarantee 183B 5

Extra Slide Section 1031 Three Requirements Must be an

in 180 days Exchange Accommodation Titleholder 1.

Buy Extra Slide Section 1031 Contract to Sell to E Sept

9 million August 2000 Exchange Accommodation Titleholder

6 Extra Slide Section 1031 Three Requirements Must be an exchange Starker Exchange identified in 45 days; acquired in 180 days Exchange Accommodation Titleholder 1. Sell 45 days identify; 180 days close 223B 2. Buy Extra Slide Section 1031 Contract to Sell to E Sept 2001 Construction Until June 2001 BD $1.9 million August 2000 Exchange Accommodation Titleholder EPC Assigns rights July 2000 Property from L May 1999 Closing Dec A 1. Contract to Buy 6

7 IRS Cannot Regroup Doctor s Interests P P/S Small % R P/S Outpatient Surgeries Invests in P Owns X & Y at different times and works there Income (Loss) 264A IRS Cannot Regroup Doctor s Interests P P/S Small % R P/S Outpatient Surgeries Invests in P Owns X & Y at different times and works there Income (Loss) 264A 7

8 IRC 1402(a)(13) there shall be excluded the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in section 707(c) {Guaranteed Payment} to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services; No definition of limited partnership 425B IRC 1402(a)(13) there shall be excluded the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in section 707(c) {Guaranteed Payment} to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services; No definition of limited partnership 425B 8

9 Basis for S Corporation Shareholder Issue is loss on S Corp. Does the S Corp. shareholder have basis? Rules are not the same as P/S Shareholder must have put cash into the S corp as a loan (economic outlay) A bank loan directly to the corporation does not create S corp. shareholder basis Loan S Corp. 471B Basis for S Corporation Shareholder Issue is loss on S Corp. Does the S Corp. shareholder have basis? Rules are not the same as P/S Shareholder must have put cash into the S corp as a loan (economic outlay) A bank loan directly to the corporation does not create S corp. shareholder basis Loan S Corp. 471B 9

10 Basis for S Corporation Shareholder Better method Bank loans to shareholder (payor or obligor) Corp. may guarantee Shareholder loans proceeds to the corp. Promissory Note S Corp. Shareholder Promissory Note 471D Administratively Inconvenient Payments on Notes S Corp. pays the shareholder Shareholder pays the Bank S Corp. $$ $$ Shareholder 471E 10

Pay or Play Penalties Look-back Measurement Method Examples

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