This trifecta of topics—Business Opportunities, Taxpayer Asserts Substance over Form, and Unincorporated Entity as S Corporation—is drawn from Steve Gorin’s first quarter 2021 newsletter. The webinar will discuss gifts of services and business opportunities in light of developments in capital markets, describe 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 evaluate the use of LLCs and limited partnerships as S corporations, including when that use overlooks potential estate planning traps.

PLEASE TAKE PREREQUISITES SERIOUSLY. THOSE WITHOUT THE REQUIRED BACKGROUND MAY NOT ENJOY THIS WEBINAR.

The 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 create property rights deemed transferred in a taxable gift 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 the 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 for business transactions and 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?
 
Learning Objectives:

• Identify gifts of services and taxation of related employee benefits


• Determine gifts of business opportunities


• Report developments in capital markets that sharpen the discussion


• Identify when a taxpayer may disavow form


• Express practical applications of disavowing form


• Recognize tax issues on business formation


• Identify unincorporated entities making S elections or owning S stock


• Recall S corporation recent developments


• Give examples of using an S corporation to avoid Code §2036 and estate planning implications of unincorporated entities making S elections