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Business Opportunities; TP Asserts Substance over Form; Unincorp. Entity as S Corp


This trifecta of topics, drawn from Steve Gorin’s 1st quarter 2021 newsletter, discusses gifts of services and business opportunities in light of developments in capital markets, describes a 2021 case of a taxpayer who recast a transaction to enhance its tax benefits and selected tax issues when a business is formed, and evaluates the use of LLCs and limited partnership as S corporations, including when that use overlooks potential estate planning traps. 

Gift tax applies to transfers of property not services. Yet services can generate valuable property rights. When do performing services and providing business opportunities avoid gift tax, and when do they generate property rights that are deemed transferred in a gift taxable transaction? We will explore this continuum and how developments in capital markets sharpen this discussion. 

In a 2021 case, a partnership selling its business wanted to control allocation of gain, and the corporate buyer sought tax benefits from buying the assets but did not document the transaction in the best way. The Tax Court discussed the standards for disavowing form, which have implications not only for business transactions but also estate planning (invoking Code § 2036 to get a basis step-up). We will review not only that case but also selected recent developments in the taxation of business formation. 

Recent years have seen an increase in letter rulings when LLC and limited partnerships make S elections but have not stripped partnership provisions from their governing documents. We will briefly review various recent developments relating to S corporations, then turn our attention to estate planning concerns. Although the Strangi-Bongard-Powell line has not been applied to entities organized as corporations under state law, what about unincorporated entities that make an S election, in light of Pierre.

The live presentation of this webinar was approved for 1.5 hours of general CLE credit in California, Illinois, and Texas and 1.8 hours of general CLE credit in Missouri. CLE credit is no longer available for this recording.  

Steve Gorin

Please note that this is a 90-minute webinar

For technical materials supporting the slides, please see Steve's newsletter.

Originally Presented:
April 27, 2021