Non Deductible Loss With Related Parties

Often the sale or exchange of property may be between related parties.  Losses on the sale or exchange of property between related parties is not deductible.  This rule on nondeductible losses applies to both direct and indirect transactions, but would  not apply when a corporation distributed property to a shareholder in a complete liquidation of the corporation.  Below is a list of related parties.

 

–       Members of a family including brothers & sisters, half brothers & sisters, parents, grandparents, children, grandchildren and other lineal descendants.

–          An individual and a corporation of the individual owns 50% or more, directly or indirectly in the value of the outstanding corporate stock.

–          Two corporations that are members of the same controlled group- see Internal Revenue Code Section 267(f).

–          A trust fiduciary and a corporation if the trust or the grantor of the trust owns directly or indirectly 50% or more of the value of the outstanding corporate stock.

–         A grantor and trust fiduciary, and the trust fiduciary and beneficiary of any trust.

–          Trust fiduciaries of two separate or different trusts and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of the applicable trusts.

–          A tax exempt organization and a person who directly or indirectly controls the organization, or a family member of the person who directly or indirectly controls the organization.

–         A corporation and partnership when the same person owns 50% or more in the value of the outstanding corporate stock and more than 50% in the capital interests or profits interest in the partnership.

–        Two different S corporations when the same person owns more than 50% of the value in the corporate stock.

–          Two corporations when one of the corporations is an S corporation if the same person owns more than 50% of the value in the outstanding corporate stock of both applicable corporations.

–        The executor of an estate and the beneficiary of an estate.  An exception exists though under situations whereby the executor is satisfying a pecuniary bequest.

–        Two partnerships when the same person directly or indirectly owns more than 50% (fifty-percent) of the profits interest or the capital interests in both of the partnerships.

–          A person and a partnership if the applicable person owns (whether it be directly or indirectly) more than 50% of the partnership profits interest or capital interest in the partnership.

The nondeductible rule as stated in the last two rules above would not apply to a sale, transfer or exchange of a partnership interest between related parties.  Furthermore, when determining ownership interests in partnership or corporation, certain attribution rules will apply.  For example, certain percentage shareholders in a corporation are deemed to own the stock that the is owned by the corporation.  Further, family attribution rules apply whereby an individual is deemed to own stock and partnership interest that family members (brother, sister, spouse, lineal descendants etc) own.

Speak with a Denver tax attorney and business attorney at The McGuire Law Firm if you have questions related to the tax implications of a business or individual transaction.  The McGuire Law Firm offers you a free consultation with a tax attorney and business attorney to discuss your issues and matters.

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The Impact of State Law on a Federal Tax Lien

How does state law impact what a federal tax lien attaches to?  Because state law can vary greatly from state to state, this is an important issue when considering the impact of a federal tax lien issued by the Internal Revenue Service.  The article below has been drafted by a tax attorney in Denver, Colorado at The McGuire Law Firm to provide information related to the above issue.  Please remember to always consult with your tax attorney or tax professional regarding your specific issues.

When considering property rights and what rights a federal tax lien attaches to, it is very important to consider state law.  While federal law will determine whether an interest qualifies as property or a right to property, the Internal Revenue Service will look to at the applicable state law in determining what rights a taxpayer has in regards to a specific piece of property.  In the court case, United States v. Craft, 535 U.S. 274 (2002) (and see Drye v. United States) the court specifically stated, “One looks to state law determine what rights the taxpayer has in property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state delineated rights qualify as property or rights to property within the compass of federal tax lien legislation.

Thus, state law will determine the taxpayer’s right in property, but it is important to remember that state law will not determine whether something is property under the Internal Revenue Code.  A good example of this issue is a state issued liquor license.  Under many states laws, a liquor license may not be recognized as property.  Whereas, under the Internal Revenue Code, the question is whether the taxpayer has rights under the state’s applicable laws.  Because the taxpayer does have rights under state law, the liquor license would be considered property under the Internal Revenue Code, and there when the Notice of Federal Tax Lien is filed by the IRS, the tax lien will likely attach to the liquor license.

If you owe taxes to the IRS, or the IRS has filed a tax lien against you or your business, contact The McGuire Law Firm to speak with a tax attorney in Denver, Colorado.  The McGuire Law Firm allows a free consultation with a attorney to discuss your IRS issues and matters, or other tax questions, issued and concerns.

Contact The McGuire Law Firm today to schedule your free consultation!

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Denver IRS Tax Debt Help

If you owe taxes to the IRS or are going through an IRS tax audit, a Denver tax attorney at The McGuire Law Firm can help you with your IRS issues.  A tax attorney can assist you with the following issues related to an IRS tax debt:

– Offer in compromise (IRS tax settlement)

– Installment Agreement (IRS payment plan)

–  Bank Levy Release

– Wage Garnishment Release

– IRS Tax Lien Issues

– Certificate of Discharge of Federal Tax Lien

– Subordination of Federal Tax Lien

– United States Tax Court Issues

Contact The McGuire Law Firm to speak with a tax attorney in Denver or Golden, Colorado.

Disposing of Section 197 Property

What is considered intangible property and how is the sale or transfer of intangible property taxed?  Intangible property could be considered personal property that has a value to it, but the property cannot be seen or touched.  Thus, in regards to intangible property consider property such as the goodwill from a business, which would be considered intangible property, or certain intellectual property rights such as a copyright or patent could be considered intangible property.  Certain intangible property is defined as a Section 197 intangible and is discussed more below.

Ok, so now that we have a better idea as to what would be considered intangible property, how is the sale of intangible property taxed?  The gain or loss on the sale of intangible property that has been held longer than one year, and that has been amortized or depreciated (and not treated as ordinary income via recapture rules) is considered a Section 1231 gain or loss, which has or will be discussed on other articles.  Thus, the remaining portion of this article focuses on 197 intangibles.  A Section 197 intangible would be certain intangible assets held for the conduct of business or a trade (or any activity operated for a profit) of which the costs are amortized over a fifteen year term.  Such assets would include: trademarks, trade names, goodwill, franchises, covenants not to compete when executed with the connection of a business acquisition, patents, copyrights, designs & knows (and similar items or processes), going concern value, customer or supplied based intangibles and licenses, permits or other rights granted by a government agency.

When disposing of such an intangible, it is important to note that a loss cannot be deducted from the disposition of the intangible you acquired in the same transaction, or through a series of transactions, as another Section 197 intangible you still have. You would increase the adjusted basis of the 197 intangible that you still retain, and if you retain more than one each intangible’s adjusted basis would be increased on a pro rata basis.  Furthermore, it is interesting, and important for a business purchaser to understand that a covenant not to compete, or similar type of agreement that would be considered a Section 197 intangible, cannot be treated as worthless or disposed of until the entire interest in the trade or business has been disposed of, that  was the basis or reason for entering into the covenant not to compete.

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Stock Sale

What is a stock sale?  How is a stock sale different from an asset sale?  Is a stock sale or asset sale better?  As a business attorney, these are common questions I hear from clients when they are considering selling their business.  A stock sale and an asset sale have advantages and disadvantages, which may me more pronounced to either the buyer or seller.  The article and video below have been prepared by a Denver business attorney at The McGuire Law Firm to provide information regarding a stock sale.  Please remember that the information provided on this site is for informational purposes and it is recommended that you always consult with your business attorney and/or tax attorney before entering into any business or individual transaction.

Unlike an asset sale, a stock sale is the sale of the corporate stock.  Thus, the corporate assets are not necessarily purchased, but the ownership of the corporation has changed.  Thus, with a stock sale the corporation remains.  This may be a benefit to the seller of the stock because they may only recognize capital gain on the sale of the stock, as opposed to the corporation recognizing gain under an asset sale if the corporation were a C corporation.  However, because the corporation remains, the liability of the corporation for previous acts “follows” the corporation.  Thus for liability purposes and exposure to prior corporate actions, many buyers would prefer an asset sale.  Furthermore, when buying the stock of a corporation, the buyer does not receive the same step up in basis for the corporate assets that they would have, had they purchased the assets through an asset sale.  Thus, the depreciation amounts carry over through a stock sale from the seller to the buyer, which is typically a disadvantage to the buyer.  The step up in basis to the purchase price of the assets would generally lead to a larger deduction and thus tax benefit.

There are other matters and issues to consider between a stock sale and an asset sale.  If you have questions related to the sale of your business, the purchase of a business or another business transaction, please contact The McGuire Law Firm to speak with a Denver business attorney.

Schedule a free consultation with a business attorney in Denver or Golden Colorado by contacting The McGuire Law Firm.

What is a Limited Partnership?

What is a limited partnership? Previously, a Denver business attorney from The McGuire Law Firm has discussed certain types of entities including partnerships in previous articles.  The article below will discuss a limited partnership.

A limited partnership could be considered a type of hybrid business structure because there are multiple types of partners/members. In a limited partnership there must be at least one partner who is liable for the debts of the partnership, and other business obligations.  Additionally, there must be at least one limited partner who is not liable and responsible for the business.  In comparison to a general partnership, a limited partnership cannot be formed simply by conduct.  Remember, a general partnership can be formed when two or more people begin conducting business for a profit.  A limited partnership must file the appropriate forms and papers with the necessary state agency such as the secretary of state.

The general partner will have management authority and will thus operate and manage the partnership and related business affairs.  The limited partner acts more as a passive investor, and does not have the responsibility of managing the business.  Thus, what can you compare a limited partner to?  In many respects, a limited partner is similar to a shareholder in a corporation.  The limited partner invests in the partnership and under the worst case scenario they may lose their investment, but such limited partner is not responsible for the debts and obligations of the partnership.  If a limited partner does exert too much control or dominance over the general partner or general partners, the limited partner could actually be liable for the business debts.  By exerting such control, the limited partner has de facto become a general partner of the limited partnership and thus exposed themselves to liability.  Different acts control such issues within a limited partnership and state law and case law should always be researched and reviewed.  Many current laws also allow business agreements that tailor the relationship between the partners and between the partners and the business. This may include tailoring the fiduciary duties a partner may have to the partnership and a partner not being liable for a breach of a fiduciary duty when one would expect such partner to be liable.  In many respects, it appears the fiduciary duties of a partner in a limited partnership can be limited more so than in a general partnership.

For tax purposes, a limited partnership is a pass through entity whereby the entity is not taxed, but items are passed through to the individual partners.

The one major drawback to the limited partnership is the exposure to the general partner.  Thus, most general partners within a limited partnership today would be corporations.  Because of the limited liability afforded to those who own and run the corporation, a limited partnership with a corporate general partner should help prevent personal exposure.

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What Property Does an IRS Tax Lien Attach To?

What property does an IRS tax lien attach to?  As a tax attorney, I am asked many questions regarding tax liens, and one such question is, what property does the tax lien attach to?  The article below has been prepared to provide additional information regarding the above question.  As always, you should discuss your particular tax matter with a tax attorney.  If you would like to speak with a tax attorney in Denver, Colorado, please feel free to contact The McGuire Law Firm to schedule a free consultation.

 

In many respects, the answer to the above question is easy because a tax lien issued by the Internal Revenue Service attaches to all property and rights to the property of the taxpayer.  Thus, this is a very broad and far reaching lien because it not only includes tangible property, but a tax lien also attaches to intangible property and rights to intangible property.  One exception exists as a tax lien does not attach an interest of an Indian in restricted land that is held by the United States.  Please see treasury regulation 301.6321-1 for information regarding this exception.

 

One important question or issue to consider is, how have courts interpreted the broad reach of a federal tax lien?  In general, courts have interpreted the broad language relating to tax liens to include many different types of property that vary greatly when compared against one another, and this includes contingent interests, future interests and contracts, which are all discussed below.

 

–          Future Interests: A future interest in property does not prevent a federal tax lien from attaching to such property.  Thus, if a taxpayer’s enjoyment to property is in the future, the tax lien can still attach to the property.  For example, if a taxpayer has a right under a contract or trust to receive payments or distributions of property, the tax lien will attach to the taxpayer’s entire right regardless of when the payments or distributions will be made.  See Rev. Rule 55-210 for more information regarding this issues.

–          Contingent Interests: A contingent interest would be an interest that a party will receive only if certain conditions occur.  For example, an individual may be a contingent beneficiary of a trust if the receipt of property requires them to perform certain tasks, live longer than another individual etc.  Courts have found that an IRS tax lien can attach to a contingent interest.

–          Executory Contracts: Courts have held that a tax lien can attach before performance within a contract agreement.  In Seaboard Surety Co. v. United States, 306 F.2d 855, 859 (9th Cir. 1962) the tax lien attached to taxpayer’s contract rights that taxpayer had assigned.  When the contract was performed, the government had a lien on the contract proceeds.  Other courts have held that contract rights under a partially executed contract had a realizable value and therefore, were a right to property that a tax lien could attach to.

In addition to the above issues, it is important to note that a tax lien attaches to property acquired by the taxpayer during the existence (or after the filing) of the tax lien.  Thus, a federal tax lien issued by the Internal Revenue Service attaches to after acquired property, meaning property the taxpayer acquires after the tax lien has actually been filed.  This is likely different from other liens such as a mortgage.

If the IRS has filed a tax lien against you or your business, it is recommend you speak with a tax attorney or other tax professional.  You can schedule a free consultation with a Denver tax attorney by contacting The McGuire Law Firm.

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Denver IRS Tax Representation

If you are experiencing problems with the Internal Revenue Service, you may want to consider hiring a tax attorney to represent you before the IRS.  The IRS procedure and current tax code can be confusing and scary to individuals and businesses that are not familiar with it.  Thus, hiring a tax attorney may save you time and stress in addition to money depending upon the circumstances. When a tax attorney represents you, they will file a Power of Attorney (Form 2848) and can receive the same notices you receive.  Furthermore, when the Power of Attorney is filed, the IRS will contact your Power of Attorney first.  John McGuire is a tax attorney at The McGuire Law Firm with offices in Denver and Golden Colorado.  As a tax attorney, John has represented clients before the IRS regarding the following issues & matters:

–          1040 Individual Income Tax Debts

–          941 Employment Tax Liabilities

–          941 Trust Fund Liabilities Assessed to Individuals

–          1120 Corporate Income Tax Debts

–          Individual Income Tax Audits

–          Corporate Income Tax Audits

–          Partnership Income Tax Audits

–          Substitute Filed Returns

–          Missing Tax Returns

–          IRS Installment Agreements & Payment Plans

–          IRS Offer in Compromise (Tax Settlement)

–          Federal Tax Lien Issues

–          Tax Lien- Certificate of Discharge

–          Tax Lien- Subordination Issues

–          Notices of Deficiency

–          US Tax Court Proceeding

In addition to his law degree, John obtained a specialized degree in taxation called an LL.M.  John applies his tax law knowledge on the above issues and when assisting clients with other tax and business matters.  You can contact The McGuire Law Firm to schedule a free consultation.

Your Rights as a Taxpayer Regarding an IRS Tax Lien

If the Internal Revenue Service has filed a tax lien against me, what are my rights as a taxpayer?  Because a tax lien filed by the IRS can have many negative implications, it is very important that you understand your rights as a taxpayer when the IRS files a Notice of Federal Tax Lien.  The article below has been prepared by a tax attorney at The McGuire Law Firm to provide information regarding your rights when the IRS files a tax lien.

Section 6320 of the Internal Revenue Code allows a taxpayer to challenge a Notice of Federal Tax Lien, request a Collection Due Process Hearing with the IRS Appeals Office, and seek a judicial review of the IRS Appeals determination.

The Notice of Federal Tax Lien issued by the Internal Revenue Service must be provided to the taxpayer in person, provided at the taxpayer’s home or principal place of business or forwarded via certified or registered mail to the last known address within five business days after the Notice of Federal Tax Lien has been filed for a tax period.  The lien notice will inform the taxpayer of the amount of the tax due and lien amount.  In terms of taxpayer right, the lien notice must inform the taxpayer of the taxpayer’s right to a hearing, the appeals procedure and the applicable procedures for the tax lien being released by the Internal Revenue Service.

If the taxpayer makes a Request for a Collection Due Process Hearing, the taxpayer will be contacted by the IRS Appeals Office, and a hearing date will be established.  An appeals officer who has no prior involvement with the taxpayer’s case, and who should act as an impartial party in analyzing the actions taken by the Internal Revenue Service, should be assigned to the case.

The Request for a Collection Due Process Hearing is made by preparing and filing Form 12153.  After filing the request, you should receive acknowledgement by the IRS that the request has been received and thereafter, you should receive a notice from the IRS calling for a hearing date.  At such time, you will be able to provide information and documents to the IRS appeals officer regarding your case and position.

If the IRS has filed a tax lien against your or your business, you have a serious tax problem with the IRS that needs to be addressed and resolved.  As a tax attorney, John McGuire has assisted many individual and business clients to resolve their tax matters, which in turn releases the federal tax lien that was filed by the IRS.  Furthermore, as a tax attorney, John McGuire knows your rights as a taxpayer and can assist you in resolving your IRS tax problems, IRS tax audits, IRS tax debts and other issues.  You can schedule a free consultation with a tax attorney in Denver, Colorado by contacting The McGuire Law.  A tax attorney can help you resolve your tax issues, and or assist with other tax matters.

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