In many "closely-held" partnerships where one partner is departing, and the acquirers effectively are going to be the other partners on a pro rata basis, the exit transaction often can be structured as either a sale or a redemption of the departing partner’s ownership interest. The economics generally can be the same; however, the tax differences to the exiting and continuing partners can be significantly different.
While S corporation shareholders have always been required to maintain stock and debt basis schedules to ensure proper passthrough reporting, the IRS has now formalized this responsibility with the requirement that, in many circumstances, new Form 7203 must be attached to a shareholder's 2021 Form 1040. Learn about this requirement, including the logistics and practical considerations that go into maintaining shareholder basis and preparing Form 7203.
Personal goodwill very often is an asset of the owner(s) of a business, rather than an asset of the business. With proper treatment and planning for the transfer of personal goodwill during - and before - the business sale transaction, selling shareholder(s) often can significantly reduce their tax liability.
When moving your or your client’s business from a C corporation to an S corporation, there are many issues to consider. One of the more critical and valuable (or costly) issues is the built-in gains tax.
The May 2021 meeting of the ABA Tax Section, traditionally held in a group live format in Washington, D.C. but presented virtually this year, is always good for a few announcements about topics of relevance. This year was no exception; here are two items of interest to flow-through tax professionals.
While flow-through taxation still is generally the way to go for the closely held business, it is not uncommon for a partnership to incorporate with a view of engaging in an exit transaction after five years via a stock sale that qualifies for the 100% exclusion of gain provided by §1202. Here is a nuance of this Code that came up in our practice.