Did You Know? Commonly Asked Tax Questions

Generally, buyers of businesses want to buy assets so they can take a step up on a tax basis. Sellers prefer to sell stock, so their gain will be taxable at favorable capital gains rates. Some gain is usually taxable at higher ordinary income tax rates in an asset sale. Accordingly, S corporation owners who have been asked to sell assets typically request, and buyers typically agree to, an increase in the purchase price to account for the additional tax

Continue Reading Did you know that state tax PTE election may offset the additional tax on an S corporation asset sale vs. a stock sale?

Earlier this year, Indiana instituted new successor liability notice requirements for sellers and buyers involved in bulk transactions of businesses and business assets in Indiana. For deals closing on or after Feb. 14, 2024, and involving transfers of more than 50% of the tangible personal property of a business, transferees may be liable for the past due Indiana taxes of transferors, including penalties, and interest, up to the amount of the purchase price or value of the tangible personal property

Continue Reading Did you know Indiana Has a New Successor Liability Notice Requirement for Business Asset Transfers?

Beginning in 2022, businesses are now required to capitalize specified research and experimental expenditures  (“SRE expenditures“) and amortize (deduct) them over time.  Expenditures attributable to domestic research are amortized over five years and expenditures attributable to foreign research are amortized over 15 years.   SRE expenditures are generally research and development costs in an experimental or laboratory sense for product development or improvement and include software development costs.

If the property with respect to which the SRE expenditures are being amortized

Continue Reading Did you know you could lose the benefit of R&D deductions in the sale of your business?

As you probably know, in a like-kind exchange, any sale proceeds that you do not apply to purchasing a new investment property will be taxable (up to the total gain on the property). The challenge with making a like-kind exchange of property in a seller-financed sale is that the seller doesn’t receive any (or very little) cash at closing.  As a result, even if the seller rolls that cash over into a new property, subsequent payments received on the note

Continue Reading Did you know you may be able to make a 1031 exchange of property that you sell on an installment note?

A common structure in the acquisition of the assets of a business is for the seller to receive equity from the acquirer in addition to cash. Receipt of a partnership or LLC interest in exchange for property is generally non-taxable. A seller can obtain substantial tax savings by deferring gain on the low-basis assets by specifying in the agreement that specific high-basis assets will be sold for cash and that certain low-basis assets will be exchanged for partnership interests. 

To

Continue Reading Did you know in a sale of assets to a partnership for cash and partnership interests you can reduce tax by specifying which assets are sold and which are exchanged for partnership interests?

The Infrastructure Investment and Jobs Act (2021) and the Inflation Reduction Act (2022) provide ample opportunity for construction industry employers to win government contracts. For some employers, one hindrance to competing for government construction contracts is that under the Davis-Bacon Act, all government construction-related contracts require employers to pay their laborers and mechanics not less than the prevailing wage and fringe benefits. Often, employers who have chosen to provide self-funded benefits struggle to have such benefits credited toward the fringe

Continue Reading Did you know there’s a straightforward way to have self-funded health and welfare benefits credited toward federal prevailing wage requirements?

In the recent case of ES NPA Holding LLC v. Commissioner, the IRS argued that a profits interest can only be received tax-free by a service provider when the service is rendered directly to or for the benefit of the entity issuing the interest. The facts of the case are complicated, but in short, in the ES NPA case, the person that received the profits interest had rendered services to a corporation which was a member in the LLC (taxed

Continue Reading Did you know you can receive profits interest tax-free even when the services are not rendered directly to the partnership?

On February 7, 2024, the IRS announced it would continue its Pre-Examination Retirement Plan Compliance Program pilot with the Pre-Examination Compliance Pilot 2.0. The pilot program aims to enhance tax compliance for retirement plans by allowing plan sponsors to identify and address issues before their retirement plans are subject to a full-scale examination.

If selected for the pilot program, plan sponsors will receive a notice from the IRS that their retirement plan has been chosen for an examination and that

Continue Reading Did you know the IRS has extended its Pre-Examination Retirement Plan Compliance Program pilot, allowing retirement plan sponsors to avoid costly penalties?

In a sale of the assets of a business (or a sale of stock that is treated as a sale of assets), the buyer and the seller must allocate the consideration paid among the business’s assets, including goodwill, and report it to the IRS on Form 8594. This allocation must be made using the residual method. Under the residual method, the business assets are allocated among seven classes in order of priority from Class I to Class VII. 

Consideration is

Continue Reading Did you know you are not required to agree on allocating the purchase price among the assets in a business acquisition?

By making a Section “83(b) election,” an employee can defer until sale the tax associated with the receipt of restricted stock as well as convert ordinary income on the stock to capital gain. Consequently, the consequences of missing the deadline for the election are fairly dramatic. The Section 83(b) election must be filed with the IRS within 30 days of receipt of the stock. With such a short timeline, as you might expect, these elections sometimes are missed.

Simply canceling

Continue Reading Did you know you may be able to mitigate the effects of a missed Section 83(b) election?