Leasing Property To A Corporation
| Avoiding payroll taxes: Rental income from real estate is not subject to the self-employment (SE) tax; a lease of real estate to a closely held corporation represents the ability to withdraw funds from the corporation without incurring Federal Insurance Contributions Act (FICA) taxes (i.e., Social Security and Medicare) or SE tax.
· Avoiding corporate-level gain: Retaining ownership of real estate and other valuable tangible or intangible assets outside the corporation avoids the potential for triggering a gain within the corporation upon a distribution or liquidation of the assets. Conversely, if appreciated assets (i.e., those with a fair market value (FMV) in excess of adjusted tax basis) are distributed from a corporation, whether in liquidation or other form of distribution, gain must be recognized (Secs. 311(b)(1) and 336(a)). · Retirement cash flow: Retaining valuable assets outside a controlled corporation allows the shareholder-lessor to continue to receive a cash flow stream from the corporation in the form of rents or royalties, even though the shareholder is not employed by the corporation. This can allow a portion of the corporate income to flow to a retired shareholder or a shareholder who is uninvolved in the business operations. · Business transition: Retaining assets outside the corporation allows the ownership of the business operation and the ownership of business assets to be segregated. For example, a controlling shareholder-lessor may want to divest ownership and control of the business operations by disposing of some or all of the corporate stock but retain a significant portion of the business assets for lease to the entity. This can help transfer ownership and control to the successor generation by minimizing the value of the corporation (e.g., where the corporation contains only operating assets such as receivables and inventory, with fixed assets retained by the founder). |
Final 2017 Income Tax Returns
Due October 15, 2018
Individual: Form 1040
C Corporations: Form 1020
Employee Benefits Plans-5500
Gift Tax: Form 709
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Non Cash Contribution Lesson From The Tax Court:The Substantial Substantiation Rules
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Non Cash Contribution Lesson From The Tax Court: The Substantial Substantiation Rules
George Carlin on the problem of stuff. “My wife and I have too much stuff. My wife, however, hates yard sales. And we cannot afford a bigger house. So we give a lot of stuff away. “
The requirement of a proper contemporaneous receipt, as the recent case of Estelle C. Grainger v. Commissioner, demonstrates the need for substantiating and valuing non cash charitable contributions.
Fair market value (fmv) is what a willing buyer would pay a willing seller, neither under a compulsion to buy or sell and both having knowledge of the relevant facts.
If the fmv is greater than the taxpayer’s basis in the property, §170(e) requires, in certain circumstances, that the taxpayer must reduce the value of the contribution to the taxpayer’s basis amount. When the fmv is less than basis, however, there is no corresponding rule that allows taxpayers to increase the value of the contribution. Taxpayers must use fair market value. Accordingly buying items at a discount and then deducting them at the undiscounted value is not permitted under the law.
Two substantiation rules are (1) the aggregation rule and (2) the Form 8283 rules. In general, the substantiation rules get stricter and stricter as the value of a taxpayer’s donations increase. For all donations of either money or personal property, taxpayers have to maintain adequate records to show the date, location and valuation of all such donations. For each donation of either money or personal property that exceeds $250, the taxpayer must also obtain a contemporaneous written acknowledgement that meets several requirements. For donations that aggregate more than $5,000, the taxpayer must also provide a qualified appraisal that supports the value claimed for the donated property.
Remember, the statute applies these substantiation requirements not only to individual and discrete donations of personality but to aggregate donations of “similar items of property” to “1 or more” charity. Treasury Regulations tell us that “similar items of property” mean property of the same generic category or type and lists a bunch of categories. One of the categories is just this word: “clothes.”
