Recent developments affect choice of entity decision

Article Abstract:

Several recent legislative changes have significant impact on the taxation of different business entity types. S corporations, for instance, will be affected by three new laws: the Small Business Job Protection Act of 1996, the Health Insurance Affordability Act of 1996, and the Personal Responsibility and Work Opportunity and Reconciliation Act of 1996. While tax provisions in these laws will not broaden the use of the S corporation status too much, they are beneficial in that they open new opportunities in estate and income tax planning. Aside from these three pieces of legislation, IRS and state agency audit activity also offer opportunities to avoid payroll taxes and related cost. As for limited liability companies and limited liability partnerships, new state laws have expanded their usage.

Tax Law, Public Finance Activities, Interpretation and construction, Limited liability companies, Limited partnership, Limited partnerships

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Corporate level taxes continue to provide problems for corporations electing S status

Article Abstract:

Since the passage of the Tax Reform Act of 1986, corporations must recognize the corporate-level gain realized from the distribution or sale of appreciated assets. Another layer of tax is added at the shareholder level when the assets or proceeds from the sale of the assets are distributed. The gain recognized is computed from the value of the distribution in excess of the shareholders' basis in stock. Since the basis of C corporation stock is often minimal, the tax at the shareholder level can be significant. S corporations with unrealized assets can defer the disposal of built-in assets to those years in which little income is anticipated or when it plans to recognize built-in losses. Thus, the timing of the recognition is crucial since it can entirely eliminate built-in gains.

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