Client wants to gift shares to his kids before sale of biz

Technical topics regarding tax preparation.
#1
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I'm quite conservative, tax code and ethics wise, and ideas like this make me nervous.

Client has 2 kids in their early 20s that do not earn much.

He wants to gift them each 1% or 2% ownership of his business.

Then they will turn around and sell the business for about $6,000,000.

You see what he's getting at? The kids will have $60,000 or $120,000 of Long Term Capital gains and thus the family will save a nice chunk of tax on the sale.

Is this frivolously aggressive for some reason?
 

#2
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Sounds like a nominal chunk to me. And also sounds like tax planning, not uncommon.
 

#3
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Definitely not uncommon. Shouldn't be considered unconservative, unethical, or nervousness inducing.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#4
Nilodop  
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Assuming, of course, that a sale agreement is not already in place.
 

#5
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Does he need another child to gift some to? Asking for a friend!
 

#6
jon  
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I think the "Step Transaction" is made for this to be thrown out, but what are the chances you are saying?? Also at one time there was a two year related party rule, but was that with just installment sales??? Does it make a difference if it is 1% or 50% to the IRS?
 

#7
Nilodop  
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It's standard tax planning, Assuming, of course, that a sale agreement is not already in place.
 

#8
jon  
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Really, so there is not a sales agreement, but I know I am selling so I gift 20% to each of my adult grand kids and file any appropriate gift tax returns and that does work??
 

#9
Nilodop  
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Really, so there is not a sales agreement, but I know I am selling. How do you "know" in the absence of an agreement?

Can there be a step argument? Yes. Facts and circumstances.
 


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