WOW! stockholder agreements to minimize taxes

Every SHH agreement I have ever reviewed called for sale of stock in certain situations, such as death. A stock purchase is economically analogous to an asset purchase without the write-offs. So thinking outside the proverbial box, the agreement should allow the survivor an assignable option to purchase assets instead (or a stock sale with a 336(e) election) so long as the decedent gets the same amount.

For example, 50% SHH A dies with SHH Agmt calling for a $1.5M cross purchase or redemption. SHH B with 50% declares he is holding $1.5M, his 50% and the option as trustee fbo an unrelated person for 1239 purposes. The trust forms an S corporation to be the buyer and a QSST election is made. A 338(h)(10) with the decedent's estate and SHH B is done at a $3M price. S and QSSUB elections are made.

Assuming all $3m is allocated to goodwill, the net effect is $3M of additional deductions at the cost of $1.5M of gain for SHH B. The down payment and timing of gain can usually be deferred via an installment sale. The income tax savings from the deductions are, say, $1,200k, and the tax on SHH B is, say, $300k, for a net tax savings of $900k, which is 60% of the price paid to SHH A. WOW!

Every SHH agreement I have ever reviewed called for sale of stock in certain situations, such as death. Thinking outside the proverbial box, a stock purchase is economically analogous to an asset purchase without the write-offs. So the SHH agreement should provide the survivor with an assignable option to purchase assets instead (or a stock sale with an asset sale election) so long as the decedent gets the same amount.

Gross example: 50% SHH A dies with a SHH Agreement calling for a $1.5M cross purchase or redemption. 50% SHH B declares he is holding $1.5M, his 50% and the option as trustee fbo an unrelated person. The trust forms an S corporation to be the buyer and a QSST election is made. A 338(h)(10) purchase of the stock held by decedent's estate and SHH B is done at a $3M price. S and QSSUB elections are made.

Assuming all $3m is allocated to goodwill, the net effect is $3M of additional deductions at the cost of $1.5M of gain for SHH B. The down payment and timing of gain can usually be deferred via an installment sale (i.e., LBO). Disregarding the time value of money, the income tax savings from the deductions are, say, $1,200k, and the additional tax on SHH B is, say, $300k, for a net tax savings of $900k, which is 60% of the price paid to SHH A. WOW!

WOW!! if you slice Spam thin and fry it for a while, it's actually fairly palatable WOW!!!!!!

But the way you are serving it is not very appealing. WOW!!!!!!!!!!!!!

snarky

[quote="gatortaxguy"} Assuming all $3m is allocated to goodwill, the net effect is $3M of additional deductions at the cost of $1.5M of gain for SHH B. The down payment and timing of gain can usually be deferred via an installment sale (i.e., LBO). Disregarding the time value of money, the income tax savings from the deductions are, say, $1,200k, and the additional tax on SHH B is, say, $300k, for a net tax savings of $900k, which is 60% of the price paid to SHH A. WOW![/quote]

You've already said in another post that you do not prepare returns.

Have you read the IRS publication on installment sales? Please read them and let us know if you still think you discovered a gigantic tax loophole overlooked by everyone, including my favourite writer Tony Nitti, and that for decades.

From your bio I read your a tax attorney with 40 years experience. This board is for tax preparers. Please come back once you've studied tax law AND it's practical applications AND prepared at least some returns, including the one in the example above you're talking about.

Putting your clients at risk for years of tax problems ... Why?

I would think you'd be happy to learn that your clients with SHH Agmts have a way to save lots of taxes that might appeal to them. Sounds like you'd rather they did not have that choice.

Hi, Gatortaxguy, I'm not taking the bait...end of story.

See anything risky with the transaction? It sure looks good to me.

I just find the strategies pretty out there and wonder how much trouble you will get into if the IRS ever figures out who you are and comes knocking.

I just find his strategies to be the musing of a theoretician, without a A-to-Z deep dive into the numbers and the tax savings, such that we can follow things. Take this one for example:

50% SHH A dies with a SHH Agreement calling for a $1.5M cross purchase or redemption. 50% SHH B declares he is holding $1.5M, his 50% and the option as trustee fbo an unrelated person. The trust forms an S corporation to be the buyer and a QSST election is made. A 338(h)(10) purchase of the stock held by decedent's estate and SHH B is done at a $3M price.

I don’t even understand what you’re saying.

Thinking outside the proverbial box, a stock purchase is economically analogous to an asset purchase without the write-offs.

Basis is just a deduction waiting to happen…

I just find his strategies to be the musing of a theoretician, without a A-to-Z deep dive into the numbers and the tax savings, such that we can follow things.

"If you can't dazzle them with brilliance, baffle them with bull...."

I just find his strategies to be the musing of a theoretician, without a A-to-Z deep dive into the numbers and the tax savings, such that we can follow things.

"If you can't dazzle them with brilliance, baffle them with bull...."

Esp. when you don't actually have to carry it out by filing forms!!!

This is my first experience with chatting. I quickly got addicted and went overboard. The negative reactions have caused me to apologize and stop chatting. I'll be happy to respond to a private message.

Steve, I would suggest you re-think it. Perhaps you've misunderstood what we do here, and I'm just one of the nuts on the tree....

But this is all about collaboration, learning from each other, doing some reality checks, etc. You don't seem much for collaboration or learning, frankly, which is disappointing to me. We need attorneys to tell us at times if our wild ideas are workable or not. Your lack of experience in doing actual tax work colors your advice, and as someone put it, tends to stick it into the theoretical rather than practical.

Sorry if you feel beaten up....you have to understand that most of us have been at this for a verrry long time, in the trenches, with long time relationships with clients for whom we work and have to live with what we've done.

So don't get mad. Collaborate....

Best to you if not.

I just find his strategies to be the musing of a theoretician, without a A-to-Z deep dive into the numbers and the tax savings, such that we can follow things.

"If you can't dazzle them with brilliance, baffle them with bull...."

Esp. when you don't actually have to carry it out by filing forms!!!

When one doesn't read the tax code, doesn't do due dilligence on how these strategies actually get reported, doesn't prepare tax returns ... Easy talk and easy walk from liability ... which will fall onto the tax preparer, mostly, and the client ... who will be suing the preparer, probably with the help of a tax attorney, because the preparer should have known better. Absolutely not right to post these unfounded ideas here. And that by a 40 year veteran tax attorney.

Steve, I would suggest you re-think it. Perhaps you've misunderstood what we do here, and I'm just one of the nuts on the tree....

But this is all about collaboration, learning from each other, doing some reality checks, etc. You don't seem much for collaboration or learning, frankly, which is disappointing to me. We need attorneys to tell us at times if our wild ideas are workable or not. Your lack of experience in doing actual tax work colors your advice, and as someone put it, tends to stick it into the theoretical rather than practical.

Sorry if you feel beaten up....you have to understand that most of us have been at this for a verrry long time, in the trenches, with long time relationships with clients for whom we work and have to live with what we've done.

So don't get mad. Collaborate....

Best to you if not.

JR1,thank you for saying what I was just thinking

The multiple nearly identical posts lead me to believe that gatortaxguy was using the forum to troll for client referrals which annoyed me a bit. In light of later posts I now think I was wrong. My apologies.