- Wealth Planning Advisory 4Q17
- Hurricane Harvey Update, A Message from our Managing Partner
- Linn Thurber Named to 2017 Best Accounting Firms to Work for List
Two Novel Approaches To Family Business Succession Planning
In the right situation, two novel approaches are available for transitioning ownership of a family business. They are a “profits interest” in entities such as a limited partnership (LP) or a limited liability company (LLC) that is taxed as a partnership and a corporate spinoff.
A profits interest in an LP or an LLC in exchange for services rendered by a current or future partner or member offers the following key benefits: (1) a profits interest entitles the owner to share in the future earnings and appreciation in the entity; (2) a profits interest does not result in taxable income to the recipient on the date it is granted; and (3) a profits interest can help to retain key employees. Comment: Based on IRS regulations, a profits interest converts the recipient from a W-2 employee to a partner for tax purposes. This subjects the recipient to self-employment taxes.
The second novel planning device for the succession of ownership of a business is the corporate spinoff, which has been commonly used in corporate reorganizations. However, in light of a private letter ruling (PLR 200645010) issued by the IRS in 2006, the corporate spinoff also presents new planning possibilities for the succession of ownership of a family business.
In that regard, PLR 200645010 presented the following scenario: (1) two sons and their mother owned a corporation that operated out of two locations, and (2) the two brothers disagreed as to the vision for the business.
To rectify this disagreement, the corporation formed a subsidiary corporation and transferred the assets of one of the business locations to the subsidiary in exchange for the subsidiary’s stock. Shortly thereafter, one of the brothers exchanged all of his stock in the corporation for stock in the subsidiary. Likewise, the mother exchanged part of her stock in the corporation for stock in the subsidiary. The end result was that one brother and the mother owned 100% of the stock in the corporation, and the other brother and the mother owned 100% of the stock in the subsidiary. After the spinoff and the exchange of stock, each brother was placed in a position to apply his vision to his business, and all of this occurred without income tax consequences.
For a corporate spinoff to avoid income tax consequences there must be a business purpose. A business purpose is a real and substantial non-federal income tax reason for the spinoff at the corporate level not the shareholder level. In PLR 200645010, the IRS found that the corporate business purpose was the elimination of conflict between the brothers, which prevented the corporation from developing a cohesive business strategy. Although a private letter ruling can only be utilized by the taxpayer requesting the ruling, it does give a good indication as to how the IRS might view situations with similar facts and circumstances.
This Planning Advisory is not intended as tax or legal advice. Also, it is not intended to offer penalty protection or to promote, market, or recommend any information contained herein. Before acting on the information in this Planning Advisory, a competent professional should be consulted.
Dear Clients and Friends:
We sincerely appreciate hearing from so many of you and your expressions of concern during this unprecedented event in Houston. We hope that you and your families are safe, and want you to know that our team at Linn Thurber is all safe, secure, and here to meet your needs. Please be aware that the September 15 tax filing deadline has already been extended to January 31, 2018.
Due to the conditions of the roads in the aftermath of Hurricane Harvey, our Greenway Houston office is closed, but the premises are secure. Our people are working remotely when possible, responding to client requests. Because Linn Thurber operations are paperless, most of our work and communications have been unaffected. Again, we appreciate your expressions of concern and support. This is truly an event of large significance for our city and region, but we are pleased to report that we are operational. If you need assistance during this period or have questions about the IRS extension, please contact your professional at Linn Thurber by email.
Please feel free to contact me with any questions or concerns you may have.
Robert Gonzales, Managing Partner
HOUSTON (August 1, 2017) – Linn Thurber LLP, a Houston-based CPA firm, was recently named as one of the 2017 Accounting Today’s Best Accounting Firms to Work for. Accounting Today has partnered with Best Companies Group to identify companies that have excelled in creating quality workplaces for employees.
This survey and awards program is designed to identify, recognize and honor the best employers in the accounting industry, benefiting the industry’s economy, workforce and businesses. The list is made up of 100 companies.
“We are delighted to have been included on the list once again,” said Robert Gonzales, Managing Partner of Linn Thurber. “Working alongside some of the best and most talented people in the industry makes Linn Thurber a great place to work.”
“We strive to achieve a balanced working environment and are pleased to receive such positive feedback from our staff,” Gonzales continued.
Firms from across the United States entered the two-part survey process to determine Accounting Today’s Best Accounting Firms to Work for. The first part consisted of evaluating each nominated firm’s workplace policies, practices, philosophy, systems and demographics. This part of the process was worth approximately 25% of the total evaluation. The second part consisted of an employee survey to measure the employee experience. This part of the process was worth approximately 75% of the total evaluation. The combined scores determined the top firms and the final ranking. Best Companies Group managed the overall registration and survey process, analyzed the data and determined the final ranking.
“The firms on this list represent the best workplaces in the accounting profession,” said Accounting Today Editor-in-Chief Daniel Hood. “They are outstanding places to build a career.”
For more information on Accounting Today’s Best Accounting Firms to Work for program, visit www.BestAccountingFirmsToWorkFor.com.
About Linn Thurber LLP:
Linn Thurber LLP is a specialized Houston-based CPA firm providing tax and advisory private client services to high net worth families and businesses worldwide. We advise some of the most affluent and successful domestic and international individuals, private businesses, entrepreneurs, investors, nonprofit organizations, family offices, and trusts.
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