An S corporation that was previously a C corporation is subject to the built-in gains tax under Section 1374 if appreciated assets held by the corporation (measured from the beginning of the S corporation’s first taxable year) are disposed of during the “recognition period.” The built-in gains tax is imposed at the corporate, rather than […]
In Johnson, Inc., the Tax Court held that the amounts paid to the shareholder-employees of a C corporation constituted reasonable compensation deductible under Section 162 and that amounts paid by the taxpayer-corporation to an entity controlled by two of its shareholders was deductible as an ordinary and necessary business expense under Section 162. Facts of […]
Starting and running a business requires making many important decisions. The very first decision faced by many business owners is what kind of entity should be formed to operate their business. In Florida, there are a number of available options. While the decision can be daunting, the variety in flavor of business entities provides the […]
In Brinks, the Tax Court once again applied the independent investor test to recharacterize compensation paid by a professional corporation, a law firm, to its shareholder-employees as nondeductible dividend distributions, and held the corporation liable for accuracy-related penalties for mischaracterizing the dividends as deductible compensation. This case should serve as a warning for many mid-size […]
In Tricarichi,1 the Tax Court held that the sole shareholder of a corporation was liable as a transferee for the corporation’s unpaid tax liability after he sold his stock in a “Midco” transaction, resulting in a tax deficiency of $15,186,570 and penalties of $6,012,777 under Section 6901 and Ohio fraudulent transfer laws. The taxpayer was […]
On 7/17/2015, the IRS issued proposed regulations regarding the Section 83(b) election. Under the general rule of Section 83(a), if, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of the fair market value of the property as of […]
Stephen R. Looney, Shareholder and Chair of Dean Mead’s Tax department, co-authored the article titled, “Compensation Reclassification Risks for C and S Corporations”. The article was published in the Journal of Taxation, May 2015 edition. The full article is provided here: Compensation Reclassification Risks for C and S Corporations.
In Midwest Eye Center, S.C., the Tax Court held that $1 million of a $2 million bonus paid to the physician sole shareholder of a personal service corporation was a non-deductible dividend distribution. Under the facts of the case, the taxpayer, a C corporation, conducted an ophthalmology surgery and care center during the tax years at […]