Company split-up between brothers was tax free
Article Abstract:
The IRS's Letter Ruling 9734033 establishes that a holding company wholly owned by two brothers could divide its subsidiaries between siblings without any tax consequences. The brothers were equal owners of the stock of a company that controlled two corporations operating a grain farm and a cattle feedyard. One brother managed the farm while the other operated the feedyard. They disagreed over the management of the feedyard and decided to divide the holding company to prevent their conflict from further undermining their operations. The IRS allowed the tax-free division of the company because it was not undertaken to distribute corporate earnings and profits, was not motivated by a tax business purpose, and complied with the requirements under Sec 355.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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Corporate recaps continue to be effective estate planning vehicles after tax reform
Article Abstract:
The Tax Reform Act of 1986 lowers the top income tax rate from 50 to 33 percent, while the top estate tax rate is 50 percent for decedents dying in 1988 or later. This difference points to the importance of careful estate planning. Recapitalization can be used to improve the positions of individuals whose estates include stock in closely held corporations. A recapitalization can be used to freeze an estate valuation. The two types of recapitalization are preferred stock and common stock. The IRS considers preferred stock recapitalization to be a form of abuse and is trying to prevent its use. Common stock recapitalizations do not achieve the same estate 'freeze' effect as preferred stock recapitalizations, but the IRS is more likely to allow them.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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