Supplementary Slides AES 2015

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Supplementary Slides – AES 2015

23A March 15 April 15 P/S S corp Trust Sept 15 Sept 30 Nov 15 C Corp Indiv FBAR 6 Mos. 5 Mos. 5.5 Mos. 6 Mos. June 30 5500 3.5 Mos. Oct 15 Law Firm of Mark Merric ©2015 – All Rights Reserved FMV Cash $ 100 Receivables 200 Inventory 150 Securities 50 Equipment 250 Goodwill 250 ‐‐‐‐‐‐‐‐ 1,000 Total A/B $ 100 200 150 30 0 0 ‐‐‐‐‐‐‐‐ 480 Acct Pay $ 50 Note Pay 175 ‐‐‐‐‐‐‐‐

New Slide – S Corp Stock Sale

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Fee Waiver Agreements

New Slide

Example

股份制公司 Corporation Deduction W‐2 Income

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Safe Harbor

Radius of Denver

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Per Diem Allowances

• Purpose – Do not have to substantiate with a receipt:

Lodging Meals Incidentals

Employees Only 1. 2. Everyone 3. Everyone 1. No 10% Corp. Owners Rev. proc. 2006‐41; § 6.07 2. No self‐employed § 4.03 Starr, T.C. Memo 2000‐35 Duncan, T.C. Memo 2000‐269

Who May Use What Per Diems?

Added Slide

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Lodging Meals & Incidentals

Meals & Incidentals 1. Daily rate based

on Location

2. High‐Low Method

However, cannot be used by (1) self‐employed;

(2) 10% corp. owners

High rate $275 ‐ 68 M&I = 207 Low rate $185 ‐ 57 M&I = 128

1. Daily rate

2. High Low Method or Specific city § 5.01 3. Trans. Industry $ 59 ‐ CONUS $ 65 ‐ OCNUS 30% v. 50% for §274(n) limit

How Much (Per Diem Rate)

Partnership S.E. Rules

Passive

Business

General

Activity of P/S

Non

S/E

Limited

# of Hours?

S/E

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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

1997 Proposed Regs.

 Not subject to self‐employment taxes unless:  Due to their status as a partner, he or she is personally liable for the debts of the partnership;  Under state law, He or she has authority to bind the partnership in contractual relationships;  He or she participates in the partnership business for greater than 500 hours.  Congressional moratorium to prevent final regs.  Have not been withdrawn

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Other Exceptions

 Possible exception if greater than 500 hours if not a guaranteed payment. Prop. Treas. Reg. 1.1402(a)‐ 2(h)(4)  Must have limited partners who do not provide services at least 20%.  Service Partners more stringent rules:  Anyone who perform more than a de minimis does not not qualify for exceptions ;  Not even the 500 hour rule 412D Law Firm of Mark Merric ©2015 – All Rights Reserved

Different Planning Approaches

1. Any non‐passive activity is S.E. income

2. Look at the activity of the partners based

on proposed regs

3. Investment v. Management Shares

4. Management Corp.

5. Guaranteed Payment

6. W‐2 to the Partners

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PC Accrual Financial

Assets:

Rec. $ 450,000 Adj Basis 0 Equip 200,000 Less Depr. ( 100,000) ---Adj Basis 100,000 ---Assets $ 550,000

Liabilities:

Net Unrealized BIG

Deemed FMV sale

$ 550,000

Less any liability

‐ AP

( 50,000)

Less adjusted basis of

corporation’s assets

(100,000)

‐‐‐‐‐‐‐‐‐‐‐

Net Unrealized BIG

$ 400,000

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Cash Basis Taxpayer

Does not report receivables as income until

received

Adjusted basis at time of election equals

zero

Does not deduct accounts payable and

wages payable until paid

However, receivables will be recognized and

payables paid in the year following the S

election

1120 S – Schedule D

Tax Paid on smallest of 3

Recognized built in gain

Taxable income for the year

Unrealized Built in Gain

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Final Regulations

§336(e) Election for S Corporations

• Section 336 (a) gain recognized on the liquidation of a corporation as if all assets sold for FMV. 336(e) deals with complete corporate liquidations and provides that under regulations prescribed by the Secretary, if: • A corporation owns stock in another corporation meeting the requirements of §1504(a)(2) (owning 80% by vote and value) or a shareholder owns an S corporation; and • Such corporation sells, exchanges, or distributes all of such stock, then • An election may be made to treat such sale, etc., as a disposition of all of the assets of such other corporation, and no gain or loss shall be recognized. See pages 10‐11 to 10‐19 473 Law Firm of Mark Merric ©2015 – All Rights Reserved

美国资产出售

Sale of U.S. Assets



收购者通常更愿意购买资产

Purchaser will want to buy assets

购买者

Purchaser

美国公司

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收购者通常更愿意购买资产

Purchaser Will Want to Buy Assets

3. 再者，20%的所得税问题

Income Tax Problem 20% - 30% of

Sales Price

2. 并且，不会涉及不明确的债务

Does not buy unknown liabilities

万圣节服装

1. 因为资产可以折旧

Depreciate the purchase price

New Slide

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FMV Patent 150 A/B $ 110 Note Pay 10

New Slide

Treated As ‐ New Slide

Asset Basis $ 110 S Corp $ 150 Flow through gain $ 40 Liquidation: Deemed Rec. $140 ($150 ‐ $10 Liab.) Basis Stock $100

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Treated As ‐ New Slide

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

S Corp. $$$ Loan

Basis for S‐Corporation Shareholder

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Shareholder Guarantees do not create basis

– Loan to S Corp. – wrong method

Gorjean v. Comm’r, 248 F.3d 572 (7

th

_{Cir. 2001)}

– Required in a separate transaction to put up

$1.2 million into a participation

Money at stake

Estate of Alton Bean v. Comm’r, 268 F.3d 553

(8

th

_{Cir. 2001)}

– Corporate debt was secured a mortgage on real property secured by the shareholder.

Shareholder Guarantees Don’t Work

– Even Eleventh Circuit Begins to Back Down. Sleiman v. Comm’r, 187 F.3d 1352 (11th_Cir.

1999)

Distinguished Selfe v. U.S., 778 F.2d 769 (11th_Cir. 1985)

In Selfe, taxpayer pledged personal property to secure the third party loan.

Eli – had a guaranty and a promise not transfer other assets without lender’s consent

Montgomery v. Commr. TC Memo 2013-151 $ 1 million loan from bank; defaulted

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Maloof v. Comm’r,

(6

th

Cir. 2006)

– Promissory note states S Corp is the payor – Signature line: S Corp. and Shareholder as co-debtors S Corp. promises to pay $$$$ XXX as President XXX Individually

Does Not Matter if Co‐Debtor

– Shareholder pledges:

$1 million life insurance policy and S corp. stock as collateral

– S Corp. goes into bankruptcy

– No economic outlay until Maloof pays the

note

Does Not Matter if Co‐Debtor

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Better method

– Bank loans to shareholder (payor or obligor)

Corp. may guarantee

– Shareholder loans proceeds to the corp.

S Corp. Shareholder Promissory Note Promissory Note $$$

Basis for S‐Corporation Shareholder

Payments on Notes

– S Corp. pays the shareholder – Shareholder pays the Bank

S Corp.

Shareholder

$$ _$$