December 15, 2021 - Think Outside the Tax Box

December 15, 2021

S Corp Redemption Decision Illustrates Advantage of Cross-Purchase

There are some significant lessons in the recent decision in the case of Estate of Michael Connelly. Sorry to spoil the surprise, but what I think the big one is is that co-owners of S corporations (and other sorts of entities) should consider a cross-purchase rather than redemption when they have a buy/sell agreement. That is particularly true if life insurance funds the arrangement. Keep reading to find out why.

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Turning Services into Property Can Create a Non-recognition Event

It’s not often that we get to wave a magic wand and turn a taxable transaction into a non-taxable transaction, but partnership taxation offers us this opportunity. Partnership taxation is extraordinarily flexible and combines tax-favored aspects of both corporate entity taxation and individual taxation. Proper planning and use of this flexibility can actually turn a contribution in return for a partnership interest from a recognition event that results in taxable income to you to a non-recognition event that merely adds to your basis in the partnership. The difference between contributing services versus property for a partnership interest is huge. Contribute services, and you have taxable compensation. Contribute property, and you have a non-recognition event. Determining whether your contribution is classifiable as property rather than services saves a ton in tax. Keep reading to learn how.

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Should You Move to Puerto Rico for Crypto Tax Savings?

At least once a week in the cryptocurrency community, there is a new post or article encouraging crypto investors to relocate to Puerto Rico to avoid tax. Relocating to the Caribbean is certainly an attractive proposition, but is it too good to be true? In the words of every good tax professional everywhere, “It depends.” Becoming a resident of Puerto Rico does have some potential tax benefits that come with it, but it is no slam dunk decision. Let’s take a trip together to the Island of Enchantment, grab a cocktail on the beach, and lower our tax bill!

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Cecile Barker and Why You Need to Keep Records Longer Than You Thought

Cecile Barker has bad news from the Eleventh Circuit. They have upheld the Tax Court’s disallowance of his multi-million dollar net operating loss deduction (NOL) largely generated by SoBe Entertainment LLC. SoBe Entertainment is a record label that has represented numerous artists included Brooke Hogan, daughter of Hulk Hogan. The indirect Hulk Hogan connection makes Mr. Barker a tangential figure in a fascinating story you can read about in Conspiracy – Peter Thiel, Hulk Hogan, Gawker and the Anatomy of Intrigue by Ryan Holiday. For purposes of this article, we will stick to the tax story which began with a Tax Court opinion in 2018, which I covered previously.

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