S corp liquidating distributions
A business owner may eventually face the prospects of selling his or her incorporated trade or business (“Target Corp.”), to a purchaser, who may be a relative, an employee or a third party.
Each transaction will have to be structured to accommodate the relationship and business deal between the buyer and seller, as well as the form and tax status of the business being sold.
As a result, the client must be able to rely upon the skill of his or her attorney and advisers who hopefully fully understand the client’s objectives and the parameters of the proposed transaction, and who can thereby devise a structure that will accommodate most if not all of these issues, in the most cost and tax effective manner.
Please review this article with the idea that the solutions proposed may not be applicable to your particula fact situation.
This article addresses some of the tax concerns for the shareholders of an incorporated entity that operates a business that is being sold to a third party.
It is important to remember, as previously stated in other articles by Stephens & Kray, that each planning situation is different.
Constructive ownership is determined based on the “attribution rules” discussed below.
In general, if a selling shareholder transfers 100% of his stock to the company, he will meet one of these tests unless he is deemed to own shares of company stock under the “attribution rules” described below.
Third, it is evident that the open-end investment company cannot attain perfect fulfillment of all the objectives stated below, but makes available the most adequate combination of facilities for the individual investor; that is, it offers the package with the greatest total amount of management, diversification, income, liquidity, and dollar appreciation.
The “not essentially equivalent to a dividend” test is based on all facts and circumstances surrounding the redemption.
In general, to meet this test the shareholder must be able to demonstrate a “meaningful reduction” in his proportionate ownership of the company based on all facts and circumstances.
Understanding what is in your ESOP account and what the rules are for when and how you will get it can seem complicated.
While there are general rules all ESOPs must follow, plans do vary from company to company.