Comprehensive Review of Your Rights to a Collection Due Process Hearing Before the IRS

Under certain circumstances and upon the Internal Revenue Service issuing certain collection notices, you have the right to request a Collection Due Process Hearing. Requesting and holding a Collection Due Process Hearing before the IRS Appeals Office can be a very beneficial tool in resolving an outstanding tax liability. The article below provides detailed information relating to a Collection Due Process Hearing.

What is a Collection Due Process Hearing?

A Collection Due Process Hearing is a right afforded to a taxpayer when the IRS has proposed a levy or enforcement action to collect on a tax debt. The hearing allows the taxpayer to work with an impartial appeals officer towards a collection alternative to resolve the debt as opposed to the proposed levy action by the IRS.

When Can a Taxpayer Request a Collection Due Process Hearing?

The most common time a taxpayer has the right to request a Collection Due Process Hearing is upon the IRS issuing a Final Notice of Intent to Levy. A Final Notice of Intent to Levy is also known as Letter 11 (L 11) or Letter 1058 (L 1058). A taxpayer has 30 days from the date on the Final Notice of Intent to Levy to request the hearing.

How Does a Taxpayer Request a Collection Due Process Hearing?

The taxpayer makes the request by filing Form 12153 with the service center or revenue officer who issued the Final Notice of Intent to Levy. Form 12153 is completed with the taxpayer’s general information, the tax periods of which the Final Notice of Intent to Levy was issued upon or included on the notice, the reason the hearing is being requested, and the proposed collection alternative. The hearing request can be faxed and/or mailed to the appropriate party within the IRS.

What Are the Benefits or Potential Benefits of Requesting a Collection Due Process Hearing?

While there are many benefits to requesting a Collection Due Process Hearing, perhaps the biggest or most advantageous benefit is the stay or hold on enforcement action that is afforded the taxpayer when a timely hearing request is filed. When a taxpayer timely requests a collection due process hearing, there is an automatic hold on IRS collection actions such as bank levies, wage garnishments, and other asset seizures. Please note that the automatic stay on enforcement action may not apply when the taxpayer owes 941 employment taxes and the taxpayer is not in compliance with the current quarter. This stays on enforcement, which allows the taxpayer time free of levies and seizures to prepare for the hearing and make a proposal to resolve the outstanding tax liability based upon their current financial circumstances.

Once a Collection Due Process Hearing is Requested, What Can I Expect?

Generally, the taxpayer will receive a notice from the IRS Appeals Office within 30-60 days from requesting the hearing that their hearing request has been received, and an appeals officer will contact the taxpayer once assigned to the case. Thereafter, the taxpayer will receive a notice from the appeals officer assigned calling an initial hearing or conference date. The initial hearing or conference date can be adjusted by the taxpayer, but the taxpayer must contact the appeals officer to reschedule the hearing date. The notice from the appeals officer will generally request additional information the taxpayer wishes to present and produce during the hearing relating to the resolution proposal the taxpayer is proposing. This information could be financial statements and information relating to an installment agreement, an offer in compromise, or perhaps a request that the liabilities be placed in a currently non-collectible status.

What is the Procedure or Process of Working With the IRS Appeals Office?

First, the appeals officer will verify that the IRS has taken all required and legal steps towards a collection of the debt and that the taxpayer has received their proper due process. Further, the appeals officer verifies that they have had no prior involvement with the applicable case or taxpayer and are a true impartial party to the matter. Upon establishing the hearing or conference date, the taxpayer will need to compile the necessary information, documents, and statements to submit to the appeals officer along with their proposal to resolve the tax liability. If the taxpayer was an individual and owed individual income tax, they would draft an individual collection information statement, also known as Form 433A, and compile all of the necessary attachments such as W-2s, income statements for self-employment income, bank statements, current statements for stocks, bonds, 401(k)s, mortgage statements, etc., to verify the income, expenses, and assets stated on the financial statement. If the taxpayer was a business or the applicable individual owned a business, the taxpayer would also need to compile Form 433B, which is a collection information statement for businesses. The taxpayer would use the financial statements and documents to propose an installment agreement or request their liabilities be placed in a non-collectible status. A taxpayer can also request a settlement, known as an offer in compromise, through the hearing process. If a taxpayer requests an offer in compromise through the hearing process, the offer will be submitted by the appeals officer (usually) to the IRS Offer in Compromise Unit, and the appeals officer will maintain the file while the IRS Offer in Compromise Unit makes an initial determination on the offer. If the determination on the offer needs to be appealed to the appeals office and the taxpayer appeals the initial offer determination, the appeals officer will then have control or jurisdiction of the appeal. Inevitably, through the appeals hearing process, the appeals officer will make a determination relating to a resolution of the liabilities.

What Are the Potential Outcomes of Holding a Collection Due Process Hearing?

The outcome or determination issued by the appeals officer through the hearing process may be dictated by the resolution proposed by the taxpayer. If the taxpayer has proposed an installment agreement and the appeals officer and taxpayer agree on the terms and conditions of an installment agreement, the appeals officer will issue a determination that an installment agreement has been reached, and thus, the levy action proposed by the IRS is not sustained. In short, if the taxpayer and appeals officer come to a collection alternative, then the appeals officer will issue their determination stating the agreement that has been reached and that collection action is not sustained. However, if an agreement or resolution cannot be agreed upon with the appeals officer, the determination made by the appeals office will state that the proposed levy action by the IRS is sustained, and thus, the taxpayer is open to enforcement such as levies once the file or case is returned to IRS Collections or the IRS revenue officer.

What if I am Unable to Establish a Formal Agreement Through the Collection Due Process Hearing?

If you cannot come to an agreement with the appeals officer, it does not mean an agreement is not possible. You are still able to enter into an installment agreement or submit an offer in compromise through the IRS Offer Unit, but you would do so outside of the context of the appeals hearing or appeals office. The key would be to work on formalizing or proposing an agreement as quickly as possible after the appeals hearing concludes because, technically, once the matter is back before the IRS Collections Department or the revenue officer, you are subject to enforcement because there is no longer a stay or hold on enforcement.

Comprehensive Review of an IRS Final Notice of Intent to Levy

Receiving any notice from the Internal Revenue Service is enough to make most people’s heart
skip a beat. However, one notice in particular that is issued by the Internal Revenue Service, the
Final Notice of Intent to Levy may strike the most fear and concern in taxpayers and rightfully
so. This article provides detailed information relating to a Final Notice of Intent to Levy and
your rights as a taxpayer.

What is a Final Notice of Intent to Levy?

When a tax liability or tax debt is owed, whether individual income tax or business-related
taxes, the IRS issues a series of notices. The first notices issued by the IRS act more to provide
notice of the liability and request for payment. If the liability is not paid in full or an agreement
reached with the IRS, the IRS will continue to issue notices and the notices increase in severity
eventually leading to the Final Notice of Intent to Levy. The Final Notice of Intent to Levy is the
IRS’ means to provide the taxpayer notice due process and that the government intends to levy
the taxpayer’s property such as bank accounts, wages, sources of income, and even real estate or
other assets if the tax liability is not paid or certain agreements with IRS are not formalized or
proposed. The Final Notice of Intent to Levy issued by the IRS allows the taxpayer 30 days to
make the proper arrangements or proposal to prevent levy or enforcement action. If certain
agreements or proposals are not reached within these 30 days from the issuance of the Final
Notice of Intent to Levy, the taxpayer is then open to levy and enforcement action from the IRS
to collect on the tax debt.

When and How is a Final Notice of Intent to Levy Issued by the IRS?

After the IRS has issued multiple notices regarding the tax liability and the tax liability is not
paid or a proper agreement formalized or proposed with the IRS, the IRS will eventually issue a
Final Notice of Intent to Levy. The timing of issuing the Final Notice of Intent to Levy can
differ depending upon whether the tax liability is with IRS Automated Collections or if the tax
liability has been assigned to an IRS Revenue Officer. If the tax liability is with automated
collections, it may take longer for the Final Notice of Intent to Levy to be issued, and the notice may be
issued from an IRS collection service center. If the tax liability has been assigned to an IRS
Revenue Officer, generally one of the first actions taken by the revenue officer is to issue the
Final Notice of Intent to Levy. While the issuance of the Final Notice of Intent to Levy does not
necessarily mean the revenue officer will immediately levy if they are legally able to, but rather
the IRS wants to have the ability to levy and enforce collection of the tax if necessary and thus
one of the primary reasons the revenue officer will usually issue the notice relatively quickly
once they have been assigned to collect on the tax. In short, the enforcement action available to
the IRS can be used if the revenue officer deems it necessary instead of waiting to find out if the
final notice has not been issued.

What is a Levy Under the Context of a Final Notice of Intent to Levy?

Under this context, a levy is a taking property by the IRS to collect on the underlying tax debt.
This means the IRS takes or seizes your property to satisfy all or a portion of the tax bill. A
common levy for the IRS would be a bank levy or a levy of your wages or income. Under the
context of a bank levy, the IRS will issue a notice of levy to the bank or banks they know or feel
the taxpayer may have a bank account. Upon receipt of the levy notice, the bank is to “freeze” or
hold all of the funds in the bank account or accounts held by that bank up to the amount of the
levy. The bank is to hold these funds for 21 days and then release all of the funds over to the IRS
after the 21 day period unless the bank levy is released or other instructions are provided to the
bank by the IRS. Bank levies can cause problems beyond the taking of the money if the taxpayer
has written checks or other auto payments scheduled as the bank is likely to not honor these
payments and the checks will bounce or payments not go through. The bank levy is generally a
one-time levy, meaning the bank will not continuously hold funds and turn them over to the IRS,
but rather only hold and pay over the funds in the account the day the bank received
and processed the levy. In comparison, a wage levy is generally a continuous levy.
Under the context of a wage levy, the IRS issues a levy notice to your employer and the
employer then withholds a portion (a relatively large portion) of your wages and pays the funds
over the IRS. This wage levy is usually continuous meaning that with each payroll period, your
employer will withhold the levied funds until the levy is either released or the terms of the wage
levy are adjusted by notice from the IRS.

What can be done to Prevent an IRS Levy Once I Have a Received a Final Notice?

Once a taxpayer has received a Final Notice of Intent to Levy from the IRS they are definitely
under the gun to take action to prevent enforcement. Paying the liability in full or establishing a
formal payment installment agreement with the IRS will prevent enforcement such as bank or wage
levies. Formally proposing an offer in compromise that is deemed processable will prevent
levies as well. In addition to the above, the Final Notice of Intent to Levy provides the taxpayer
with what can be a very useful tool of due process, which is the right to request a Collection Due
Process Hearing. The Request for a Collection Due Process Hearing acts as a hold on any
enforcement action on the tax periods included within the Final Notice of Intent to Levy if the
request is filed within 30 days from the date of the Final Notice of Intent to Levy. Upon
requesting a Collection Due Process Hearing, your file or the tax liabilities are sent to the IRS
Appeals Office and a hearing or conference will be scheduled to discuss collection alternatives as
opposed to levies to collect or resolve the tax liability. There is an automatic stay or hold on
enforcement until you have been able to conduct a hearing and communicate with an appeals
officer regarding a resolution to the tax liabilities. If an agreement is reached with the appeals
officer through the hearing, this will act as a hold on enforcement. If an offer in compromise is
submitted through the appeals officer, this will also act as a hold on enforcement until a
determination is reached regarding the offer. If you are unable to reach or propose any collection
alternative with the appeals office that acts a hold on enforcement, the IRS Appeals Office will
issue a determination sustaining the levy action proposed by the IRS and your case will either go
back to general collections or the revenue officer and you will be subject to or “open” to levy and
enforcement, which is not preferred and what you are trying to avoid. It is important to note that
even if you do not request a Collection Due Process Hearing within 30 days from the date of the

final notice, you still have the right to request a hearing called an equivalent hearing with the
appeals office. The biggest difference between the equivalent hearing and collection due process
hearing is that the equivalent hearing does not necessarily act as or guarantee you a hold on
enforcement action, which may be problematic if you request the equivalent hearing and the IRS
moves forward with levy and enforcement action.

Can a Bank Levy or Wage Levy be Released?

The good news is, yes. If the IRS has issued a bank levy or wage levy, you may be able to have
the levy released or partially released. If the IRS has levied your bank account, under certain
circumstances (generally those showing an economic hardship has been created) the IRS can
agree to a full or partial release of the levy. If the IRS agrees to any type of release of the bank
levy, the IRS will issue a notice to the bank either providing for a full levy release or releasing a
portion of the funds the bank is holding pursuant to the bank levy. If the IRS is levying your
wages, the IRS can agree to release the wage levy in full, or the wage levy can be
adjusted/lowered to an amount that you are able to show does not create an economic hardship.

Does the Release or Adjustment of a Levy Mean the IRS Will Not Levy Again?

Not necessarily. If the IRS releases a levy but you fail to fully resolve the tax matter with a
payment agreement or settlement, you could be open to another levy in the future. Generally, if
the IRS is forced to levy again, they may be less likely to release the levy given the prior release
and fact the underlying issues leading to the need to levy have not been resolved.

Receiving a Final Notice of Intent to Levy from the IRS means that you have a tax liability that
needs immediate attention. If you are unable to resolve the tax liability immediately after
receiving the final notice, it is highly recommended you speak with a tax attorney to discuss the
facts and circumstances of your case, your options to resolve the tax matter and the necessary
procedural steps to resolve the matter without enforcement action from the IRS.

Contact The McGuire Law Firm to discuss your tax issues with a tax attorney.

Tax season is upon us again, and you may ask yourself if there are benefits of hiring a tax attorney in Denver. This means filing returns, paying taxes, and dealing with any issues that arise along the way. While many try to handle things themselves, doing so can lead to severe consequences. For example, failing to pay your taxes can put you in danger of being audited by the Internal Revenue Service (IRS). If you owe money to the IRS, you might even be charged interest and fines.

As we know, there are many different types of taxes that individuals and businesses must pay every year. From payroll taxes to sales taxes to income taxes, it can become very confusing to figure out how much money you owe each quarter. This is where a tax attorney can help. A tax attorney specializes in assisting companies in navigating the complicated world of taxes. If you have trouble understanding what you need to do to file your taxes correctly, or if you need to resolve a dispute with the government over unpaid taxes, you’ll want to understand the benefits of hiring a tax attorney in Denver.

Additionally, you do not want to pay taxes to the IRS. After all, the government is taking money away from you. A tax lawyer can help you navigate the process of paying off your debts, including allowing you to avoid mistakes that could lead to additional charges.

What Is A Tax Attorney?

Tax attorneys are lawyers who specialize in federal and state income tax laws. A tax attorney must complete four years of college and three years of graduate-level coursework. After completing the requirements, they take the LSAT or the Law School Admission Test. 

Once the state bar exam is completed, a tax attorney works for a law firm specializing in taxes. Their main objective is to help clients file returns correctly and understand how to minimize their tax liability. Below are some of the benefits of hiring a tax attorney in Denver.

Understanding Tax Policies

The tax laws are updated now, and it is almost difficult for ordinary citizens to know what exactly is happening. This is where the benefits of hiring a tax attorney in Denver come into play. They are well-versed in tax policies and update themselves on new tax laws. As such, they can help you understand the current situation and ensure you comply with the law.

Filing Tax Returns

Tax season is here again, and it’s time to start thinking about getting everything done. But how do you know where to turn? You don’t have to worry anymore because your tax lawyer is there to guide you every step of the way. An experienced tax attorney knows the required forms and when they’re due. They’ll also help you determine whether you need to file a return or amend one. And if you need to file a late return, your attorney can prepare the necessary documents to get an extension.

Protect Your Finances and Property

The Internal Revenue Service has several collection options to help people pay back what they owe. One of those options is a wage levy. This allows the IRS to take a portion of your income directly out of your paycheck. Another option is a bank account levy. These are often used against individuals who fail to file returns or pay tax liabilities. However, there are several exceptions to both levies. For example, if you don’t have access to your bank accounts or if you can prove that it isn’t possible to pay off the debt, you won’t be subject to either levy.

If you receive a Notice of Intent to Levy, you have 30 days to respond. You must provide information about how much you owe, whether you can afford to pay, and why you believe you shouldn’t be required to pay. The IRS will consider waiving interest charges if you can’t pay and agree to a payment plan. However, the IRS will begin seizing your wages or bank accounts if you miss payments.

In addition to the above, certain protections are afforded under federal law. For instance, if you lose your job, you cannot be forced to sell your house, car, or other personal property just because you have yet to pay your taxes. Additionally, the IRS cannot garnish Social Security benefits without court approval.

Tax Disputes

If you receive a letter saying that the IRS is auditing your return, it’s essential to act quickly. They are likely looking for errors on your tax return; however, sometimes audits happen because of mistakes someone else made. You might think you did nothing wrong, but if you make a mistake on your taxes, it could cause problems down the road. One of the benefits of hiring a tax attorney in Denver is to help navigate the process and communicate with the IRS, so you don’t end up paying penalties and interest.

It means you’re still in luck if you owe the IRS money. You can reduce the amount owed by filing an Offer in Compromise. However, there are some things you’ll want to know about before applying.

A penalty abatement allows taxpayers to pay less than what they owe while avoiding the payment of interest or late charges. To qualify for a penalty abatement, you must file Form 656, Penalty Abatement Request. This form outlines the information needed to request a penalty abatement. Once submitted, IRS employees review your case and decide whether to approve it.

In addition to filing an OIC, consider paying off your debt early.

Maintain Your Credit

The Internal Revenue Service (IRS) does not report your tax debts to the three major credit reporting agencies—Experian, Equifax, and TransUnion. However, you could face severe consequences if you fail or cannot pay your taxes. A Notice of Federal Tax Liens (NFTL) is filed against you by the IRS. If you do not resolve the issue within 30 days, it becomes a judgment against you. Once recorded, your debt will be reported to the three major credit bureaus—Experian, Equifax, and TransUnion. These reports will remain on your credit history for seven years.

If you enter into a payment arrangement or offer in compromise with your local IRS office, you may avoid having an NFTL placed against you. Sometimes, a lien can be removed early, allowing you to rebuild your credit history sooner. An experienced tax resolution lawyer may be able to negotiate with the IRS to release the lien.

Tax Fraud or Evasion

The IRS has been cracking down on people accused of tax evasion and fraud. In 2017 alone, it charged over 5,500 individuals and businesses with crimes related to failing to pay taxes. This number jumped dramatically from 2016, when there were just 2,700 cases filed. And while the majority of the charges involved failure to file tax forms, there were also some instances of tax fraud.

A lawyer is essential in these cases because they can help you avoid serious consequences. If you refuse to file your taxes, you could face jail time. You could lose your home if you fail to pay what you owe. And if you reveal all your sources of income, you could end up paying hundreds of thousands of dollars in fines.

In addition to the penalties mentioned above, there are also civil consequences. For example, if you don’t file your taxes by April 15th, you could be fined $50 per day. You might also be required to pay interest and penalties on the amount owed.

Protection From Litigation

Businesses are often sued because of negligence. Negligence occurs when someone fails to act reasonably under the circumstances. For example, a business owner could only correctly train employees about safety procedures or provide adequate security measures. Even though businesses do everything possible to avoid lawsuits, some still sue them. When this happens, it is called litigation.

Litigation is expensive and stressful. You might lose your business if you need to learn how to defend yourself. One study found that the average cost of defending against a lawsuit is $1 million. Fortunately, there are ways to protect your business from the litigation without spending too much money.

An experienced tax attorney can help you build strong defenses against negligence claims. They can even draft legal documents, such as insurance policies and employment agreements, to protect your business. Another benefit of hiring a tax attorney in Denver is we can advise you about what types of evidence are most likely to win a case and how to best prepare for trial.

Intermediary Working For You

When dealing with the Internal Revenue Service, many different types of lawyers can help you. Some work directly for you, while others represent clients whose cases intersect with yours. But no matter whom you choose, you want someone who can help you navigate the process, provide advice, and guide you through the steps needed to resolve your issues. Some people call themselves “intermediaries” because they act like middlemen between you and the IRS. They help you understand what’s happening, explain your options, and negotiate resolutions to your problems.

Your intermediary might be a solo practitioner, a small firm, or even a large law firm. And although they won’t necessarily be able to do everything for you, they can offer guidance, assistance, and representation throughout the process.

Let JM Tax Law Provide You With The Most Benefits Of Hiring A Tax Attorney In Denver

The IRS is cracking down on people who owe money to Uncle Sam. They threaten to garnish wages, sue you and even put liens on the property. If you pay up, it could save you everything. But there’s hope. You can still avoid foreclosure, wage garnishment, and bank levies. We’ve helped thousands of clients just like you escape the clutches of the IRS.

At JM Tax Law, we understand how overwhelming this process can be. That’s why we’re here to help. Our team of highly experienced attorneys is ready to take action on your behalf. So call us now at 720-833-7705!

Our Denver business attorneys are highly skilled and practice various transaction matters. They know how to guide businesses through the complexities of the law effectively. We can assist you with drafting contracts, negotiating deals, and resolving disputes.

We advise on employment agreements, intellectual property issues, commercial leases, real estate transactions, mergers and acquisitions, and general corporate matters. We understand the importance of protecting your interests and strive to educate our clients about their business decisions’ legal requirements.

We offer free initial consultations to discuss your particular situation and determine whether we are the right fit for you. Contact the McGuire Law Firm today to schedule your consultation.

Why You Need a Business Attorney in Denver

When you start a business, there are many things to consider, including how much money you want to spend on legal fees. You might think that hiring a full-time lawyer is the best option. But what if you don’t have enough cash flow to cover those costs? What if you’re starting and don’t know anyone who could recommend someone trustworthy? Or maybe you’ve been running your business for a while now and feel ready to hire a lawyer. Here’s a quick guide about finding and picking a business attorney.

A business lawyer can help you understand what the law says about your particular industry and business model. They are experts in navigating the many complexities involved in running a business. Your business attorney can also help you avoid common pitfalls and challenges, such as tax liabilities and potential lawsuits.

When starting a new business, knowing where you stand legally is essential. This includes ensuring that your business name is protected, that your intellectual property is secure, and that you comply with all state and federal laws.

Once you have been operating your business for a while, a business attorney can assist you in negotiating contracts, resolving disputes, and protecting your interests during mergers and acquisitions.

Your business attorney can also guide you through compliance issues, including establishing internal policies and procedures, developing a risk management plan, and managing third-party vendors.

Determine Why You Need a Business Attorney in Denver

The best time to hire a small business lawyer is before you need one. This way, you’ll know exactly what questions you want to be answered and whether you’re getting good value for your dollar. Here are three reasons startups and small businesses should consider hiring a business attorney in Denver.

Choose the Right Entity Type

Choosing the correct type of business entity is critical because it affects everything about how you run your business. If you choose the wrong form, you could end up paying unnecessary taxes, running afoul of corporate regulations, or even losing out on opportunities to be part of a larger organization.

Drafting Legal Documents

Drafting legal documents such as term sheets and operating agreements requires specialized knowledge. In addition to knowing the ins and outs of the law, you’ll need someone who knows the fine print of drafting contracts.

Navigating Securities Laws

Securities laws are complex and often confusing, especially regarding crowdfunding. Having a small business lawyer on board can make navigating this area much more manageable.

Finding a Business Attorney In Denver

One of the best places to start your research is online. Whether you find a business attorney before you need them or you’re looking for a legal advisor for a specific situation, you can follow a couple of best practices. These include having multiple options to compare, finding numerous lawyers to meet with, and selecting the individual that’s the perfect fit for your business.

If you’re looking for a general business attorney, make sure they specialize in areas relevant to your business. Start with local directories like Yelp or Google. Some attorneys specialize in commercial law, while others focus on intellectual property issues. It’s essential to compare their experience levels, qualifications, fees, and references.

Finally, once you’ve narrowed down your list of candidates, it’s advisable to schedule meetings with each of them. By doing so, you’ll be able to ask questions about their background, experience, and fee structure. After meeting with several attorneys, choose the one that’s the best match for your needs.

Helpful Questions To Ask a Business Attorney

The third step in finding the best small business law firm is to compare the rates offered by different firms. You don’t necessarily have to hire a big-name firm to provide legal representation; many smaller businesses choose local attorneys who are familiar with their industry and can help them navigate complex issues.

When comparing rates, consider that several factors affect what a small business owner must pay for legal counsel. Some factors include how long it takes to close a deal, whether the lawyer offers discounts to repeat customers, and whether the firm provides ongoing support.

In addition to reviewing fees, ask the following questions during your research:

• How long have you been a business attorney in Denver?
• What percentage of your practice consists of representing businesses?
• Do I need to pay retainer fees up front?
• Will my case require hourly billing?
• Are there any costs associated with hiring a business attorney in Denver?
• Can I review documents before signing a contract?

Business Formations

Businesses come in all shapes and sizes. Some start small and grow into large corporations. Others take off like wildfire and become household names. There are even those that remain relatively unknown despite having been around for decades. Regardless of how long a business has been operating, it is essential to understand what type of business structure best suits one’s needs. For example, does one want to be a sole proprietorship, partnership, corporation, LLC, LLP, or S Corporation?

The McGuire Law Firm offers free consultations to discuss your particular situation and answer questions about the pros and cons of each type of business entity. We can help you choose the correct form of business organization for your needs.

Mergers, Acquisitions, Sales, and Business Transactions

The McGuire Law Firm provides legal counsel for mergers, acquisitions, sales, and other business transactions. Our firm represents buyer and seller clients, and we focus on providing effective solutions to complex problems.

We represent businesses and individuals in commercial litigation matters, including breach of fiduciary duty claims, securities fraud cases, intellectual property disputes, and employment law disputes.

Our experience includes representing buyers and sellers in business transactions ranging from simple asset purchases to multi-million dollar acquisitions and complex corporate restructurings.

In addition to serving as general business lawyers, we offer specialized expertise in the following areas:

• Business Litigation & Dispute Resolution
• Corporate Restructuring & Bankruptcy
• Employment Law
• Intellectual Property
• Merger & Acquisition Transactions
• Real Estate
• Taxation & Accounting

Need a Business Attorney in Denver?

A business attorney can explain the benefits and drawbacks of each option and help you determine which is best suited for your circumstances.

If you are facing serious tax issues, you must contact JM Tax Law immediately. We offer free consultations and work hard to ensure our clients understand what options are available to them. Our attorneys provide practical solutions to complex problems and work diligently to ensure that our clients receive the best possible outcome. Contact us today to learn about how we can assist you.

There are many legitimate reasons United States persons may maintain foreign bank accounts or foreign assets. Perhaps an individual owns real estate in a foreign country, making payments via a foreign bank account easier. Alternatively, an individual has come to the United States for education and remained or married a United States citizen. 

While many US Citizens, US Residents, or US Persons may maintain foreign bank accounts and assets, many are unaware of their obligations to report their foreign bank and financial statements and learn of these reporting and compliance obligations after the time to report has passed. 

While there are stiff penalties for failing to report foreign accounts and financial assets, programs are available whereby an individual can register their foreign accounts and unreported foreign income and receive a much lesser penalty than what the IRS could assess under current tax laws. 

This article discusses the Streamlined Offshore Voluntary Disclosure Program, an option for individual taxpayers. Initially, the Internal Revenue Service started the Offshore Voluntary Disclosure Program, which required a 27.5% penalty on the highest foreign asset balance over the look-back period on unreported foreign bank accounts and financial assets. To many, the 27.5% penalty was excessive when considering the offense, and in 2012, the Streamlined Offshore Voluntary Disclosure Program was initiated, which applies a 5% penalty to the highest account balance.

The Streamlined Offshore, Voluntary Disclosure Program, is for United States Persons whose failure to timely report all foreign assets is deemed non-willful.

What is the Procedure for the IRS Streamlined Offshore Voluntary Disclosure Program?

An individual applying for the Streamlined OVDP must: file amended tax returns for each of the most recent three years whereby the tax return due date has passed along with all informational returns (Forms 8938, 3520, 5471 are examples); file FBARs (Form 114) for each of the most recent six years whereby the FBAR due date has passed; and, pay the 5% miscellaneous offshore penalty. In addition to paying the 5% penalty, any amount of tax and penalty from the amended tax returns should be paid.

How is the 5% Streamlined OVDP Penalty Calculated?

The 5% offshore penalty is applied based on the highest aggregate year-end balance of the foreign financial assets during the covered tax periods. It is important to remember that the penalty is based on year-end balances of all accounts and not just the highest balance during the year. If the highest balance during the year was used, you could calculate a higher penalty if money were transferred from one foreign account to another. For example, if an individual had three foreign bank accounts and the highest year-end balance over their 6-year look-back period was $40,000, the offshore penalty would be $4,000.

What is “Non-Willful” for Purposes of the IRS Streamlined OVDP?

For purposes of Streamlined OVDP, the IRS has deemed “non-willful” to mean that your correct mistake in reporting all foreign assets and income was due to an error, inadvertence, negligence, or good faith misunderstanding the law. Given that you were not turning a blind eye to your reporting requirements, this could mean that you did not know you had a reporting requirement and had no real reason to know.

Perhaps your foreign accounts are already taxed abroad, and thus it could be logical to think you would have no reporting requirement in the US because you had already paid tax. Perhaps you inherited a foreign bank account from a family member or friend and only had the account open for a short period. The more an account or asset appears to have a useful purpose, or you have a tie to the foreign asset apart from tax avoidance, the better the failure to report appearing “non-willful.”

What is Form 14654?

Form 14654, Certification by US Person Residing in the US, is an additional form that is submitted through the Streamlined OVDP process. Form 14654 certifies that:

• you are eligible for the Streamlined Domestic Offshore Procedures; 
• you have filed all required FBARs;
• your failure to report all income and pay all tax was due to non-willful conduct; 
• that the 5% offshore penalty you have calculated is correct. 

Form 14654 is filed with your amended tax returns and related forms and schedules through the OVDP process.

Where do I File FBARS When Going Through the Streamlined OVDP Process?

FBARS or Form 114 are filed directly with FinCEN (the Financial Crimes Enforcement Network) and may be filed online. It is important to note that current Streamlined OVDP procedures request that when filing a late FBAR through the Streamlined OVDP process, you report that you are filing the FBAR late and state “Streamlined Filing Compliance Procedures.”

How Do I Know if I Had or Have a Requirement to File the FBAR?

A US Person (defined below) has an FBAR requirement if they have a financial interest or signatory authority over a foreign bank account or reportable foreign asset and the total amount of all foreign assets exceeds $10,000 (in US Dollars) at any time during the year. Thus, it is essential to remember two key items.

First, the threshold of $10,000 applies to the total of all accounts, not each account. Therefore, you may have multiple foreign bank accounts or reportable foreign assets less than $10,000, but if they total more than $10,000, you likely have a reporting requirement.

Second, the reporting requirement applies even if you have an account or asset for a short period. Having signature authority or a financial interest over a foreign account for even a day would still require an individual to file an FBAR.

Who is a “US Person” for Purposes of FBAR Filing Requirements?

A US Person is defined as, (i) a citizen or resident of the United States, (ii) an entity that is formed, organized, or created in the United States or under the laws of the United States (or certain territories), and would include but not be limited to corporations, LLCs, partnerships, and trusts or (iii) an estate formed under the laws of the United States.

Based upon the definition of a US Person, businesses can have FBAR reporting requirements. Furthermore, because the definition considers a US Resident to be a US Person, you do not have to be a US Citizen to have an FBAR filing requirement.

What Are Common Forms Filed With Amended Tax Returns When Filing Streamlined OVDP?

Beyond the FBAR, Form 14654, and amended tax returns, we commonly see the following forms that need to be filed. 

Schedule B is typically filed with a 1040X because the individual may not have appropriately claimed foreign interest or dividends and may need to check the appropriate boxes relating to foreign assets on Schedule B. 

Form 8938, Statement of Specified Foreign Financial Assets, is another common form filed with an individual’s 1040X. Form 8938 is similar to the FBAR, whereby certain foreign assets and income are reported. The dollar threshold for filing Form 8938 is higher than the FBAR and changes based upon filing status and citizenship issues.

Form 3520, Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, is another relatively common form. If you have received a foreign gift or inheritance over certain amounts, you have a Form 3520 filing requirement.

Other forms may need to be filed depending upon the circumstances, but Forms 8938, 3520, and Schedule B are some of the common forms and schedules you may be likely to see on a 1040X being filed pursuant to Streamlined OVDP.

Does the IRS Acknowledge the Streamlined OVDP Filing or Provide a Closer Letter?

No. While you should always track the filing of your Streamlined OVDP and the cashing of your checks is reasonable verification that IRS is in receipt, you do not receive any specific acknowledgment or acceptance by the IRS when going through Streamlined OVDP procedures.

When your applicable amended returns are processed, you may receive a notice for interest or penalty based upon any additional assessment of tax, which again is reasonable verification of receipt. Still, the IRS does not provide any further acknowledgment or acceptance letter.

Have More Questions? Contact Us

The above article has been provided for informational purposes only and should not be considered tax or legal advice. If you have unreported foreign financial assets, you should discuss your specific facts and circumstances with an international tax attorney. If you have questions regarding foreign investments or international tax matters, you can speak with an international tax attorney by contacting The McGuire Law Firm at 720-833-7705.

The title of Form 5471 lays it out succinctly, “Information Return of U.S. Persons Concerning Certain Foreign Corporations.” 

It is the form used to report information about a foreign corporation where a US person owns an interest in the said foreign corporation. It sounds simple enough….

A taxpayer or tax practitioner should begin thinking about whether or not a form 5471 is required when a US person (generally an individual, partnership, corporation, or trust) owns an interest in a foreign entity. That is a fair place to get form 5471 on your radar. It won’t always mean the form is required, but it should warrant some investigation.

One of the first determinations is what exactly the taxpayer owns. For Form 5471, you should be looking for the taxpayer to own an interest in a foreign corporation.

What Is A Foreign Corporation?

Foreign Corporations: The Regulations provide that “per se” corporations, as listed in 301-7701-2(b)(8), are corporations as are associations as defined in Tres. Reg. 301-7701-3.

Foreign entities where all members have limited liability are considered, by default, to be associations treated as corporations for US tax law. A member has limited liability when, under the laws of which it is organized, the member has no personal liability for the debts of or claims against the entity because of being a member.

This is an exciting point because a foreign limited liability company, where all members have limited liability, is treated as a corporation for US tax purposes under the default rules. 

This is contrary to how a US-based limited liability company (LLC) is treated for US tax purposes. Often, taxpayers and practitioners assume that foreign limited liability companies are treated as flow-through entities for US tax purposes (as a US LLC is treated). Still, they are not treated that way unless an entity classification election has been made.

Suppose a US person owns an interest in a foreign entity treated as an association for US tax purposes. In that case, that entity defaults to a corporation for US tax purposes.

Once the determination is made on the type of entity owned, the US person needs to determine how much of the entity that person owns.

How Much Of The Foreign Corporation Do You Own?

Ownership of a foreign corporation is determined in three ways:

1. Direct Ownership

2. Indirect Ownership

3. Constructive Ownership

Direct Ownership

As the name implies, the shareholder can own an interest directly. When determining how much of an entity a person owns, the voting interest in the corporation and the value of the corporation’s shares are considered. Generally, the higher percentage of interest is the deemed ownership for determining filing obligations.

Indirect Ownership

Indirect ownership arises when the US person owns an interest in a foreign corporation through the US person’s ownership in another entity. If the US person owns an interest in a partnership or other foreign corporation, that US person may be deemed to own a proportionate share of what that entity owns (see also Constructive ownership).

Again, consideration should be given to voting rights and values of ownership.

Constructive Ownership

There are several instances whereby the US person is deemed to own interests in a foreign corporation because of a related person (or entity) owning an interest in a foreign corporation. These rules can be complicated as they apply the constructive ownership rules under Section 318, with some tweaks. 

The constructive ownership rules broadly say a US person is deemed to own what certain family members own and what certain corporations, partnerships, trusts, and estates own. A formal discussion of 318 is more than this article hopes to present, but at least knowing to look for related party interests can help frame the need to either look more deeply into what the US person owns or to find some help.

A Quick Example Of How The 318 Rules Can Play Out

A US person (individual) owns 2% of a foreign corporation’s voting rights and value. You will see later that a 2% interest does not, on its own, create a filing obligation for form 5471. 

Since you’ve read this article, you know enough to ask who the other owners are. The US person’s non-resident alien (not a US person) father owns 90% of the foreign corporation. After applying the 318 rules, it is deemed that the US person owns 92% of the foreign corporation for specific form 5471 reporting purposes. Several layers of tax law must be applied and considered to get the correct answer.

A point to remember is that sometimes the face of the facts is not enough to make a proper filing determination for form 5471. Be sure to inquire deeper than the surface.

Now that you know a US person owning an interest in a foreign corporation and know how much of that foreign corporation the US person owns, you can apply that information to determine if the 5471 needs to be filed.

Categories of US Persons Who File Form 5471

The form instructions provide that the return must be filed by US persons (US individuals or US entities)

who meet specific ownership amounts or are a director or officer of the foreign corporations. The form instructions outline the ownership requirements provided across several internal revenue code sections, primarily sections 951, 953, 957, 958, 6038, 6046, and 965. The instructions break down the different filing obligations into certain Category filers to determine who has to file form 5471.

Category 1 Filers (Sec. 965)

A Category 1 filer is a US person considered a US Shareholder of a foreign corporation that is a section 965 specified foreign corporations. Effectively that means the taxpayer is a US person who owns 10% or more (vote or value) of a foreign corporation (making the taxpayer a US Shareholder), which is a controlled foreign corporation (discussed later) or the taxpayer is a US person who owns 10% or more of a foreign corporation where a domestic corporation owns 10% or more of the foreign corporation.

Note, that a domestic corporation could mean either a C-Corporation or an S-Corporation. Still, the rules and regulations on this are very unclear for applying the specified foreign corporation rules.

Reminder, if the US person owns less than 50% of the foreign corporation (directly, indirectly, or constructively), you should always check to see if the Category 1 filer rules apply.

Category 2 Filers (Sec. 6046)

A Category 2 filer is a US citizen or resident who is an officer or director of a foreign corporation in which a US person has acquired enough stock to exceed 10% overall ownership or an additional 10% purchase.

When a US citizen or resident is an officer or director of a foreign corporation, and another US person buys enough stock, that US citizen or resident has to file form 5471 to report that other person’s purchase.

Category 3 Filers (Sec. 6046)

A Category 3 filer is a US person who acquires stock in a foreign corporation which either increases the US person’s ownership over 10% of the vote or value of the foreign corporation or adds 10% ownership of the vote or value of the foreign corporation. Additionally, a person who becomes a US person while owning 10% or more of a foreign corporation is a Category 3 filer. 

US persons who dispose of enough stock to drop that person under the 10% ownership threshold are also a Category 3 filer.

Finally, a person treated as a US shareholder of a foreign insurance company is a Category 3 filer.

Here are a few examples of this rule (assuming direct ownership):

US person owns 3% of a foreign corporation. That person purchases an additional 9% of the foreign corporation. In that year, the total ownership went over 10%, thus, that US person is a Category 3 filer that year. 

US person owns 15% of a foreign corporation. Unless that person bought that 15% in the current year, there is no Category 3 filing obligation for that year. BUT, if the US person buys an additional 10% or more during the year, that person would be a Category 3 filer.

In year 1, US persons own 40% of a foreign corporation. That US person disposes of 20% of their interest in year 2, leaving them with a 20% interest. That disposition does not give rise to Category 3 filing obligation. 

In year 3, that US person disposes of an additional 15% of their holdings, bringing their total holdings under 10%. That person is a Category 3 filer in year 3.

Category 4 Filers (6038)

In short, a category 4 filer is a US person who “controls” a foreign corporation. Control means the US person owns (directly, indirectly, or constructively) more than 50% of the vote or value of the foreign corporation at any time during the foreign corporation year.

Referring back to the example in the constructive ownership section, since the US person’s son would be deemed to own 92%, even though he only directly owns 2%, he would be deemed to control the foreign corporation for purposes of  Category 4 and who is required to file form 5471.

Category 5 Filers – Controlled Foreign Corporations (Sections 951, 957, 958, 6038)

If a foreign corporation is considered a controlled foreign corporation (CFC), US persons who are US shareholders are Category 5 filers. A US person is a US shareholder if that person owns 10% or more of the vote or value of the foreign corporation. A foreign corporation is a CFC if US shareholders own more than 50% of the vote or value of the foreign corporation.

Concerning each Category filer, there may be exceptions to the required filing. Careful examination should be made to determine if an exception applies.

A person can fall into multiple categories in any given year.

What Happens If I Don’t File Form 5471 or It Is Late?

The taxpayer that fails to file form 5471 or is late and was required to file the form may be subject to a $10,000 penalty per form per year.

What Other Forms Should I Consider Filing?

Often the requirement to file the form 5471 means there may also be other international forms or elections that should be filed. 

If the taxpayer is filing form 5471, that taxpayer should also look into filing the following forms or elections as well (note, this is not an exhaustive list, just a sample):

Form 8938 – Statement of Specified Foreign Financial Assets Foreign Bank Account Reporting (FBAR)

Form 926 – Return by US Transferor of Property to a Foreign Corporation

Form 8992 – US Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)

Form 8993 – Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI)

Section 962 Election – Election by Individuals to be subject to tax at corporate rates.

Form 8858 – Information Return of U.S. Persons concerning Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs).

Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund

Summary of Form 5471:

The 5471 is a challenging form to file. It can be challenging to determine if you have a filing obligation for form 5471. As a brief summary and something that should get you thinking about form 5471, broadly consider the following:

A taxpayer may have to file form 5471 if the taxpayer is a US person and owns (by voting rights or value).

An interest in a foreign corporation, and that interest exceeds 10% of the voting rights or value of the foreign corporation, or that foreign corporation is an insurance company, and the taxpayer owns any amount, or the taxpayer is a director or an officer of a foreign corporation. A US person has acquired 10% of the stock of a foreign corporation.

This can be an area that can be quite detailed and, at times, difficult just to determine if there is a filing obligation, to say nothing of the actual preparation and filing of the forms. 

Unless you practice in this area, it is likely worthwhile to seek professional advice.

*This article is meant to present a very high-level discussion of filling obligations for Form 5471 and does not present a thorough or complete discussion on the subject. There is a lot of information and rules in this area, which can get quite deep.

Should you have any questions about form 5471 or would like some help with issues around this form, please contact Christopher Stroh, JD, LL.M (Taxation) at The McGuire Law Firm. To speak with our professional Tax Attorneys, call us at 720-833-7705.

You may qualify for excluding gain from the sale of your home by up to $250k of your capital gains from your taxable income or $500k if you’re filing a joint tax return with your spouse. You must sell your principal residence before you can claim the exclusion. You can exclude gain up to $500k of each home’s capital gain if you own two houses. Publication 523, “Selling Your Home,” provides cost basis rules and worksheets. Topic No. 409, “General Capital Gain and Loss Information,” covers general capital gain and losses information.

Requirements for the Gain Exclusion

To meet the requirements for Section 121 Gain Exclusion, you must satisfy both of the following tests: 

1) you must own and use your principal residence as your main home for at least two out of the five years before the date of sale, and 2) you must exclude any gain from the sale of your other home during the two years preceding the sale of your principal residence. If you meet either test, you may exclude the gain from the sale from your capital gains tax liability calculation. 

To determine whether you meet the ownership requirements, you need to identify the period when you met both tests. For example, if you meet the ownership test during the first three years of owning your home, then you meet the ownership test for the entire five-year period. Similarly, if you meet the use test during the last four years of owning your home before selling it, you meet it for five years.

Reporting the Sale

If you sell real estate, you may need to file a Schedule D (Form 1041) each year’s end. You should also file Form 8949 if you sold any property during the year. Suppose you received a Form 1099-S (Proceeds From Real Estate Transactions). In that case, you must report the sale even if the gain from selling the house is excludable. You must also report the sale if you can’t exclude the entire amount of capital gains from taxable income. To know whether you need to report the sale, see Publication 523.

Suspension of the Five-Year Test Period

An individual is eligible for the suspension of the five-year test if they meet either of the following two conditions:

1) They are on a qualified official extended leave of absence from their position for more than 90 consecutive days.

2) They serve in a capacity that requires them to be absent from their position due to unforeseen circumstances.

At a military base at least 50 miles away from your family or living in government housing. Suppose you live in a dormitory, barracks, or similar quarters while stationed overseas. In that case, you may not be considered a resident of your state or county of your principal residence. You must also meet all other requirements for residency. For example, suppose you’re living in a hotel or motel room. In that case, you might need to stay there for 30 days before qualifying for residency.

Installment Sales

If you sell your house under a contract that provides that part of the selling price will be paid in installments, you must report the sale as an installment sale. You may exclude any gain realized on the sale, but not any loss. See Publication 537, Installments Sales, for more information.

Summary Section 121 Exclusion

• You must sell your primary residence within ten years of buying it.
• You can exclude up to $250K of the gain or $500K if you file a joint return with your spouse.
• You must use the proceeds of the sale to buy another property, such as an investment property.
• You can deduct up to $10K per year for the cost basis related to selling your house.
• You can claim a deduction for state and local sales taxes paid on the sale of your home.
• You can also claim a deduction for mortgage interest paid on the home’s sale.
• You cannot claim a deduction for moving costs.
• You can exclude up to $250,000 ($500,000 for married couples filing jointly) of taxable gain from the sale of your primary residence.
• The exclusion applies to any gain from the sale of a primary residence.
• You’re required to report the sale of your primary residence even if you can exclude some of the gains.
• The suspension applies to spouses who are also military members.
• The exclusion of gain under section 121(b)(3) continues to apply to installment sales regardless of whether the seller uses the installment method to defer the gain.

Need Help With Filing Taxes On Your Property Sale?

There are many different ways to file your tax return. You don’t have to navigate them all by yourself. If you need assistance with your tax return, plenty of resources are available to help you. Some of the most common options include filing online, using an app, or contacting The McGuire Law Firm and speaking to one of our tax attorney professionals. Call us at (720) 833-7705.

Common Use for a Forward Triangular Merger

One standard method used is a forward triangular merger, or as some people refer to it, an indirect merger under Section 368(a)(2)(D) of the Internal Revenue Code. This type of merger is beneficial when a parent corporation is looking to purchase or acquire another entity, known as the target corporation, but is hesitant to inherit any liabilities or other negative aspects of the target. 

In a traditional A reorganization under Section 368(a)(1)(A), the target corporation merges directly with the acquirer. At this point, the acquirer is responsible for all liabilities associated with the target. Therefore, the purchasing corporation may often structure the transaction as a forward triangular merger rather than a traditional A merger by using a subsidiary to protect against any known or unknown liabilities the target may have. A Denver business attorney has prepared the article below to provide additional information on a forward triangular reorganization.

Where Forward Triangular Mergers are Prevalent

Forward triangular mergers are also prevalent where entities plan to use a significant amount of cash, or boot, in the deal.

Unlike reverse triangular mergers, forward triangular mergers have greater flexibility in the amount of boot that may be used in the transaction since the 80% voting requirement does not apply under Section 368(a)(2)(D) for purposes of consideration.

For example, consider Corporation P, which would like to acquire Corporation T. However, Corporation T has a massive liability on its books that Corporation P is hesitant to accept. Corporation P will first set up another entity called a subsidiary. The Corporation T is the target corporation and will then merge into a subsidiary, rather than Corporation P, for consideration provided by Corporation P. The target corporation ceases to exist and thereby liquidates. At this point, the only surviving corporation in the merger is the subsidiary. Thus, the shareholders of Corporation T will ultimately receive the consideration provided by Corporation P. This structuring allows the target’s liabilities to remain isolated within a subsidiary while simultaneously allowing the purchasing corporation to acquire the target, Corporation T. 

Note that even though this may be considered a tax-free reorganization, there may still be tax consequences to the target corporation’s shareholders upon liquidation, depending on the amount and type of consideration used in the transaction (See Internal Revenue Code Section 354).

Three Critical Things to Remember in a Forward Triangular Reorganization

 First, this transaction only qualifies for tax-free treatment if it would have satisfied the requirements of a traditional A reorganization under Section 368(a)(1)(A) had the merger been done directly between the purchasing corporation and the target corporation. This requires evaluating the transaction as if the subsidiary were not used. If the target merged into the purchasing corporation and still satisfied the A reorg requirements, then this would help Section 368(a)(2)(D)(ii). This requires a statutory merger and, even more importantly, continuity of interest requirements.

Second, in Section 368(a)(2)(D) reorganization, no stock of the wholly-owned subsidiary entity may be used as part of the consideration in the transaction. The only stock acquisition of the purchasing corporation, Corporation P in the above example, may be used. However, other reviews from the subsidiary may be provided, such as cash. Suppose the stock of the wholly-owned subsidiary corporation is used. In that case, it will fail the requirements of Section 368(a)(2)(D) and may result in a taxable transaction unless it satisfies another reorganization structure under Section 368.

Finally, according to the treasury regulations under 1.368-2, the purchasing corporation must substantially acquire all of the target’s assets by using the subsidiary.

Forward triangular reorganizations optimize restructuring without facing tax consequences while removing the transfer of a target’s liabilities to a parent corporation. Depending on the type and value of consideration available, a forward triangular reorganization may be the best restructuring tool for your merger.

Key Takeaways

• A forward triangular merger is a form of reorganization that provides a means to avoid the potential tax consequences of acquiring a company with substantial liabilities. It accomplishes this by merging the target with a subsidiary of the acquiring corporation. The target corporation ceases to exist and is liquidated. The sole remaining corporation is the subsidiary.
• The IRS considers a forward triangular merger to be a reorganization because it satisfies the definition of a reorganization found in Section 368(a).
• However, the IRS does not allow a forward triangular merger to qualify as a tax-free reorganizational event unless the following conditions are met:
  • The acquiring company must pay fair market value for the target company’s assets.
  • The target company continues to operate after the acquisition.
  • The acquired company ceases to exist and is liquidated.

You can contact The McGuire Law Firm to discuss your business or tax-related issues with a Denver business attorney or tax attorney. 

Non-recourse debt means that if the debtor defaults, the creditor cannot pursue the debtor personally. Instead, the creditor must seek recovery from the collateral securing the loan. The creditor can file a suit against the borrower if the collateral does not cover the debt. However, if the collateral covers the debt, the lender will likely agree to accept less than the total amount owed.

With recourse debt, the creditor can come after you and your assets if you fail to repay the loan. If you default, the creditor can seize your property, including any real estate you own and sell it to recover the amount owed. Non-recourse debt does not allow the creditor to go after you if you default on an obligation. Instead, the creditor can only get back what he paid for the asset. For example, if you bought a house using a mortgage, the bank cannot come after you for the unpaid portion of the mortgage. However, if you default on the mortgage, the bank can foreclose on the house and sell it to recover its losses.

Concerns when Obtaining Property Subject to Non-Recourse Debt

A second concern arises when considering acquiring property subject to a non-recoverable debt. You must first determine if the non-recourse liability is included in the purchase price. If so, you must also consider whether the non-recoverable responsibility is part of the sale proceeds. The cornerstone case for both of these questions comes from Crane v. Commissioner, 331 U.S. 1 (1947), which was decided in 1947 by the United States Supreme Court.

The basis of a property is the price paid for the property when you bought it. If you buy a house for $100,000, the basis is $100,000. You can deduct any increase in the value of the home during the year from your taxable income. For example, if you sell your house for $200,000, you get a capital gain of $100,000 ($200,000 – $100,000) and pay taxes on half of that gain ($50,000), leaving you with a $50,000 net profit. A higher basis means you can claim more significant deductions for depreciation, interest, and other expenses.

Non-recourse debt is usually considered when you buy a house. You must pay back the loan plus interest if you borrow money to buy a home. If you default on your loan, the bank may seize your assets. However, if you own your house free and clear, you won’t owe any money if you fail to repay the loan. You’ll still have to pay taxes on the gain, but there won’t be any penalties for failure to repay the loan.

In general, if you borrow money against your residence, the basis should be the property’s fair market value at the time of the loan. If you borrow money against your business real estate, then the basis should reflect the fair market value of your business real estate at the time of the borrowing. However, there are exceptions to this rule. You may be able to exclude certain types of debt from the basis of your property. For example, if you borrow money to pay for improvements to your property, the amount borrowed does not become part of the basis of the property. Similarly, suppose you borrow money to purchase an asset that is held primarily for sale to customers in the ordinary course of business. In that case, the amount borrowed is excluded from the basis of the asset.

Key Takeaways

A recourse loan is a type of credit instrument where the lender has recourse against the borrower if there is an event of default. A non-recourse loan is a type of loan where the lender does not have recourse against the borrower if the loan goes bad. Non-recourse loans are often associated with real estate lending because real estate is considered a safe asset. However, non-recourse loans are also used in other industries, including finance, manufacturing, and construction.

Non-recourse loans allow borrowers to borrow up to the value of the property. If the borrower defaults, the bank cannot pursue them for the remaining amount. As a result, banks charge higher interest rates on these types of loans to cover the increased economic risk. In the United States, loan-to-value ratios for residential mortgages are generally capped at 80%.

Special Considerations

Non-Recourse debt is an investment strategy involving borrowing money at low-interest rates and then investing those funds in projects that will generate returns later. These investments are made without guaranteeing that the borrower will repay the loan. If the project fails, the lender does not lose anything because they did not put any money down. On the other hand, if the project succeeds, the lender gets paid back plus interest.

For more information speak with a Denver business attorney at The McGuire Law Firm, call 720-833-7705.

A reorganization allows a company to restructure its operations without triggering significant tax consequences. A reorganization is generally considered a change in the form of a corporation rather than a mere change in the place of doing business. For example, suppose a company moves its headquarters from New York City to Los Angeles. In that case, it will likely qualify as a reorganization because the move changes the form of the corporation. However, if a company merely changes its name, it may not qualify as a reorganization. You should consult your accountant or other professional advisors about the potential tax implications if considering a reorganization or B reorganizations.

What Are B Reorganizations?

In B reorganizations, the acquiring corporation acquires all of the target corporation’s shares. The acquiring corporation doesn’t need to pay any money to purchase the target corporation’s shares. Instead, the acquiring corporation pays the target corporation’s shareholders for the acquired shares. This means that the acquiring corporation owns the target corporation’ shares directly.

The acquiring corporation then calculates the basis of the target corporation’s share using the same method as if it had bought the shares. For example, if the acquiring corporation buys 100 shares at $10 per share, the acquiring corporation will calculate the basis of the target shares as if the acquiring corporation owned those shares. If the acquiring corporation paid $100 for the shares, the basis would be $100.

B reorganizations are complex transactions that require careful planning and execution. They must be done correctly to avoid legal issues.

What Are The Control Requirements For B Reorganizations?

In B Reorganizations the control requirement is satisfied if the acquiring corporation possesses at least 80% of the value in all classes of voting stock plus at least 80% of all other classes of stock. If the acquiring corporation acquires 80% of the value from Classes A and B, it will satisfy the control requirement. However, receiving less than 80% of the value may still qualify for a tax benefit. For example, consider five classes of stock – Class A and Class B, with voting rights, Class C, Class D, and Class E, none of which have voting rights.

What Type of Consideration May Be Used In B Reorganizations?

A B reorganization is a type of corporate restructuring that allows companies to move assets out of an insolvent subsidiary and back into the parent company. This corporate restructuring requires a particular form of corporate reorganization called a “B” reorganization. Only certain types of corporations are eligible for a B reorganization, including those whose primary activity consists of owning or operating businesses in the same line of business as the corporation seeking the reorganization. For example, if a company owns a hotel chain, it could seek a B reorganization to transfer all of its hotels to another company. However, if a company owns real estate, it could not pursue a B reorganization unless it also owned a hotel chain.

Can B Reorganizations Occur Over a Series of Transactions?

A reorganization can occur when a company acquires another company. A reorganization occurs when the acquiring company’s shareholders receive all or substantially all of the target company’s shares. Reorganizations can be accomplished via multiple steps. For example, an acquisition could involve the purchase of all outstanding shares of the target company at a price below its fair value. Then, the shareholders of the acquiring corporation could vote to approve the merger. Finally, the acquiring corporation could issue additional shares to the target company’s shareholders.

Will There Still Be Minority Shareholders?

B reorganizations require at least 80% control to be successful. This isn’t the right choice if you’re looking to reduce your share count. A B reorganization doesn’t necessarily mean that you’ll lose any control. You could retain all of your shares if you wanted to. But if you’re looking to reduce the number of outstanding shares, other options are available.

If you are considering a business sale or acquisition, you may qualify for a tax benefit under Internal Revenue Code Section 368(a)(1)(A) if the transaction meets specific requirements. For example, you must not have shareholders other than yourself, and you cannot transfer all of your assets to another entity. You also need to meet specific financial criteria. If you meet those criteria, you may be eligible for a tax deduction for the amount paid to acquire the company.

Key Takeaways

Bankruptcy is an attempt to turn around a failing business. If a company is insolvent, then it cannot repay its creditors. When a company files for bankruptcy, it must submit a reorganization plan. An insolvent company will often file for Chapter 11 bankruptcy protection.

The plan’s purpose is to restructure the company’s finances and operations to return it to solvency. The goal is to put the company back on track to repay its debts. Insolvent companies often need to cut costs drastically. This includes cutting wages and benefits, laying off employees, closing stores, and selling assets. These actions are called “reorganizing.” A judge usually supervises reorganizations. The judge approves the reorganization plan, and the company emerges from bankruptcy if all goes well.

A Chapter 11 bankruptcy filing allows a company to reorganize its finances while continuing operations. This type of filing is often used when a company needs a period of time to restructure its debt and re-establish its financial structure. It also gives companies breathing room to negotiate with creditors and avoid liquidation. Companies may file for Chapter 11 protection if they cannot pay all of their debts or if they are unable to come to an agreement with their creditors about how to repay them.

Conclusion

If you’re considering a reorganization, you owe it to yourself, your shareholders, and your employees to follow a rigorous plan rather than winging it. You will make better decisions, keep everyone more involved and engaged, capture more value and avoid costly mistakes.

You can contact The McGuire Law Firm to speak with a Denver Business Attorney and learn if your transaction qualifies as a B reorganization for tax deferral purposes.