Source: https://www.jdsupra.com/legalnews/all-in-the-family-the-closely-held-46391/
Timestamp: 2019-06-20 20:06:33
Document Index: 766531716

Matched Legal Cases: ['§ 4940', '§ 4940', '§ 2055', '§ 2055', '§ 1362', '§ 1362', '§ 4943', '§ 4943', '§ 1361', '§ 1361', '§ 4946', '§ 4946', '§ 4947', '§ 4947']

All In The Family: The Closely Held Business, The Private Foundation And Indirect Self-Dealing | Farrell Fritz, P.C. - JDSupra
Our last post considered the division of a business between family members as a means of preempting the adverse consequences that will often follow disagreements within the family as to the management or direction of the business.
This week, as family members return to work – after having come together to celebrate the holidays and renew their commitment to one another – we turn to a recent IRS ruling that considered a situation that that presents the proverbial “trap for the unwary,” and that arises more often than one might think in the context of a business that is plagued by family discord. https://www.irs.gov/pub/irs-wd/201850012.pdf.
There are two major factors that contribute to this reality: (i) the owner’s business will represent the principal asset of their estate, and (ii) the owner established a private foundation that they plan to fund at their demise (and thereby generate an estate tax deduction), either directly or through a split-interest trust.[xvii]
In these circumstances, the foundation may have to divest its interest in the family business in order to avoid the imposition of another private foundation excise tax (the one on “excess business holdings”).[xviii] Because of the limited market for such an interest, the foundation (or the owner’s estate or revocable trust) will probably have to sell its interest to the business itself (a redemption, as in the ruling above) or to another owner – each of which may be a disqualified person, thereby raising the issue of self-dealing.
§ 4940. Excise tax based on investment income , 26 U.S.C. § 4940
§ 2055. Transfers for public, charitable, and religious uses , 26 U.S.C. § 2055
§ 1362. Election; revocation; termination , 26 U.S.C. § 1362
Friedman v. Beway Realty Corp. , 661 N.E.2d 972 (N.Y. 1995)
§ 4943. Taxes on excess business holdings , 26 U.S.C. § 4943
§ 1361. S corporation defined , 26 U.S.C. § 1361
§ 4946. Definitions and special rules , 26 U.S.C. § 4946
§ 4947. Application of taxes to certain nonexempt trusts , 26 U.S.C. § 4947