A qualified plan is subject to IRS funding limits but is protected from the business' creditors. Those payments can be attached by creditors. A buy-sell agreement is a contract establishing the procedure for buying out the owner's share of the business, how the price will be determined and the time frame over which the payout will occur. There is no corporate deduction for this transaction. In order to sell all the stock to the company, the owner must waive all rights to participate in the company-a requirement which stops some who wish to continue as a director or chairman.
Accurate appraisals are extremely important due to tax implications.
A recent rule change affects such gifts. Now, if the gift is appropriately disclosed, after three years, the valuation stands. Although the ruling leaves some gray area, an accurate appraisal by a CVA may carry enough weight to prevent any future IRS revaluation. Discounts may apply when an owner sells a portion of the business to his children. To avoid giving stock ownership to family members not involved in the business, make gifting decisions before the gifting process begins.