Supplementary Slides AES 2015 March 15 April 15 June 30 Sept 15 Sept 30 Oct 15 Nov 15 P/S S corp 6 Mos. C Corp 5Mos. Trust 5.5 Mos. Indiv FBAR 6Mos. 5500 23A 3.5 Mos. 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. $ 225 Equipment 0 250 250 Goodwill 0 250 250 Total 480 1,000 520 Purchase Price $ 775 134A Go to Slide 147 1
Fee Waiver Agreements New Slide 2% Mgmt Fee Waive Fee 10% Profit PEF Investors 99% Capital 80% Profit Mgmt Co. GP 1% Capital 20% Profit 190A Example Deduction 股 份 制 公 司 Corporation W 2 Income 198A 2
Safe Harbor 264A Radius of Denver 50 Mi 30 Mi 380A 3
Per Diem Allowances Purpose Do not have to substantiate with a receipt: Lodging Meals Incidentals Three options of reimbursement: 1. 2. 3. No Lodging Only Rate Sec. 1 L, M & I Expenses 384A M & I Expenses Incidentals Added Slide Who May Use What Per Diems? Lodging Meals Incidentals 1. Employees Only 2. 1. No 10% Corp. Owners Rev. proc. 2006 41; 6.07 Everyone 3. 2. Noself employed 4.03 Starr, T.C. Memo 2000 35 Duncan, T.C. Memo 2000 269 Everyone 384B 4
Added Slide How Much (Per Diem Rate) Lodging Meals & Incidentals 1. Daily rate based on Location Meals & Incidentals 1. Daily rate 2. High Low Method High rate $275 68 M&I = 207 Low rate $185 57 M&I = 128 Notice 2012 63 same as last yr. However, cannot be used by (1) self employed; (2) 10% corp. owners 384C 2. High Low Method or Specific city 5.01 3. Trans. Industry $59 CONUS $65 OCNUS 30% v. 50% for 274(n) limit Partnership S.E. Rules General Activity of P/S Passive Business Non S/E Limited # of Hours? S/E 412A 5
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 412B 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 Have not been withdrawn 412C 6
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 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 412E 7
Assets: PC Accrual Financial Liabilities: Rec. $ 450,000 Adj Basis 0 Equip 200,000 Less Depr. ( 100,000) ------------- Adj Basis 100,000 ------------ Assets $ 550,000 A/P $ 50,000 Equity: 500,000 ------------ Liabilities & Equity $ 550,000 424A 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 424B 8
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 424C 1120 S Schedule D Tax Paid on smallest of 3 Recognized built in gain Taxable income for the year Unrealized Built in Gain 1120S Schedule B, Line 6 424D $ 400,000 9
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. Law Firm of Mark Merric See 2015 pages All 10 11 Rights to 10 19 Reserved 473 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 U.S. Corp. 473A 10
收 购 者 通 常 更 愿 意 购 买 资 产 Purchaser Will Want to Buy Assets 1. 因 为 资 产 可 以 折 旧 Depreciate the purchase price 2. 并 且, 不 会 涉 及 不 明 确 的 债 务 Does not buy unknown liabilities 万 圣 节 服 装 3. 再 者,20% 的 所 得 税 问 题 Income Tax Problem 20% - 30% of 473B Sales Price New Slide Asset Basis $ 110 FMV 150 S Corp Liab. $ 10 $ 140 Law Firm of Mark See page Merric 2 4 2015 All Rights Reserved 479A 11
New Slide A/B FMV Gain Patent $ 110 150 40 Note Pay 10 (ADADP) Aggregate deemed assets disposition price Purchase Price adjusted grossed up basis $ 140 AGUB 479B Treated As New Slide Asset Basis $ 110 S Corp $ 150 Flow through gain $ 40 Law Firm of Mark See page Merric 2 4 2015 All Rights Reserved 479C Liquidation: Deemed Rec. $140 ($150 $10 Liab.) Basis Stock $100 Gain 40 Total $140 12
Treated As New Slide New C Corp Patent $ 140 Deemed Contribution $140 Stock $ 140 Need to make an S Election Law Firm of Mark See page Merric 2 4 2015 All Rights Reserved 479D 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. $$$ 487A 13
Shareholder Guarantees Don t Work Shareholder Guarantees do not create basis Loan to S Corp. wrong method Gorjean v. Comm r, 248 F.3d 572 (7 th Cir. 2001) Required in a separate transaction to put up $1.2 million into a participation Money at stake Estate of Alton Bean v. Comm r, 268 F.3d 553 (8 th Cir. 2001) Corporate debt was secured a mortgage on real property secured by the shareholder. 487B Shareholder Guarantees Don t Work Even Eleventh Circuit Begins to Back Down. Sleiman v. Comm r, 187 F.3d 1352 (11 th Cir. 1999) Distinguished Selfe v. U.S., 778 F.2d 769 (11 th Cir. 1985) In Selfe, taxpayer pledged personal property to secure the third party loan. Eli had a guaranty and a promise not transfer other assets without lender s consent Montgomery v. Commr. TC Memo 2013-151 $ 1 million loan from bank; defaulted Judgment against Montgomery $425 k, not paid 487C 14
Does Not Matter if Co Debtor Maloof v. Comm r, (6 th Cir. 2006) Promissory note states S Corp is the payor Signature line: S Corp. and Shareholder as co-debtors S Corp. promises to pay $$$$ XXX as President XXX Individually 487D Does Not Matter if Co Debtor Shareholder pledges: $1 million life insurance policy and S corp. stock as collateral S Corp. goes into bankruptcy No economic outlay until Maloof pays the note 487E 15
Basis for S Corporation Shareholder Better method Bank loans to shareholder (payor or obligor) Corp. may guarantee Shareholder loans proceeds to the corp. Promissory Note S Corp. $$$ Shareholder 487F Promissory Note Administratively Inconvenient Payments on Notes S Corp. pays the shareholder Shareholder pays the Bank S Corp. $$ $$ Shareholder 487G Go to slide 492 16