The Problem of Sale of "C" Corporation - it is usually a sale of the assets. What is Personal Goodwill? What are the benefits? What are the characteristics? What happened in Martin Ice Cream to make personal goodwill so attractive? It was affirmed in Norwalk, but the taxpayer lost in Solomon and Howard. The 2014 Bross Trucking case affirmed that there is a pro-taxpayer approach as did the estate tax case of Adell. How do you do the planning for this? First, you must do it years in advance of a sale. You need to value the personal goodwill and document it.
Planning to Avoid the New Medicare Tax & Other 2013 Tax IncreasesBruce Givner
Information on all of the new tax increases for 2013, including the new Medicare tax, and how it will affect you!
For more information, please visit us at www.givnerkaye.com
20 07-23 building blocks to eliminate the estate taxBruce Givner
In 1977 Professor Cooper of Columbia Law School wrote an article that suggested the estate tax is voluntary. In 43 years, nothing has changed. Those who fail to plan, plan to fail. The elements of estate tax elimination include the discounts provided by a family limited partnership, such as lack of marketability and lack of control; thoughtful use of the lifetime estate and gift tax exclusion; private annuities, including how to meet the exhaustion test; generational split dollar; tiered entity discounts; GRATs (grantor retained annuity trusts); and SCIN-GRATs.
14 07-09 orange county bar association - int'l estate planningBruce Givner
U.S. persons with real estate in multiple countries; U.S. persons with relatives in other countries; U.S. citizens abroad; non-U.S. persons with real estate in the U.S.; residency for income tax purposes; residency for transfer tax purposes; expatriation;
Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Bruce Givner
Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section 877A. How to hold real estate (inbound planning). Effectively connected income so as to be taxed at graduated rates. What does it mean to be engaged in a trade or business. Impact of treaties. Making the election to be taxed on a net income basis. Owning real estate through a foreign corporation, and handling the branch level taxes. IRS Forms 1120-F and 1040NR. FDAP: fixed,determinable and periodical income at 30%. Partnership might be required to withhold on foreign partner's share of gain on sale of real property under Section 1445 (USRPIs) and Section 1446 (partnerships). U.S. dividends paid to foreign subject to 30% under Sections 1441 and 1442. Treaties typically reduce the rate to 5% - 15%. Use W*-BEN. FIRPTA: the Foreign Investment in Real Property Tax Act treats gain from the sale of USRPI (United States real property interest) as if trade or business and gain as ECI (effectively connected income. Does not affect the character of the gain.
For more information, please visit us at www.givnerkaye.com
15 07-24 Puerto Rico Income Tax IncentivesBruce Givner
Instead of expatriating, it is better to consider retaining your U.S. citizenship and becoming a resident of Puerto Rico. You sign a 20 year contract with the government. As a result, as an individual, you can pay zero federal and state tax on local interest, dividends and capital gains. The incentives for business are also phenomenal: a 4% rate with profits paid to owners tax free. A business must have 3 employees of which husband and wife can count as two.
Planning to Avoid the New Medicare Tax & Other 2013 Tax IncreasesBruce Givner
Information on all of the new tax increases for 2013, including the new Medicare tax, and how it will affect you!
For more information, please visit us at www.givnerkaye.com
20 07-23 building blocks to eliminate the estate taxBruce Givner
In 1977 Professor Cooper of Columbia Law School wrote an article that suggested the estate tax is voluntary. In 43 years, nothing has changed. Those who fail to plan, plan to fail. The elements of estate tax elimination include the discounts provided by a family limited partnership, such as lack of marketability and lack of control; thoughtful use of the lifetime estate and gift tax exclusion; private annuities, including how to meet the exhaustion test; generational split dollar; tiered entity discounts; GRATs (grantor retained annuity trusts); and SCIN-GRATs.
14 07-09 orange county bar association - int'l estate planningBruce Givner
U.S. persons with real estate in multiple countries; U.S. persons with relatives in other countries; U.S. citizens abroad; non-U.S. persons with real estate in the U.S.; residency for income tax purposes; residency for transfer tax purposes; expatriation;
Crossing Borders: Primer On International Taxation For Individuals - June, 2013 Bruce Givner
Basic income and estate and gift tax rules for resident and non-resident aliens. Withholding. Returns to be filed. Pre-immigration planning. Residency for tax purposes. Expatriation - IRC Section 877A. How to hold real estate (inbound planning). Effectively connected income so as to be taxed at graduated rates. What does it mean to be engaged in a trade or business. Impact of treaties. Making the election to be taxed on a net income basis. Owning real estate through a foreign corporation, and handling the branch level taxes. IRS Forms 1120-F and 1040NR. FDAP: fixed,determinable and periodical income at 30%. Partnership might be required to withhold on foreign partner's share of gain on sale of real property under Section 1445 (USRPIs) and Section 1446 (partnerships). U.S. dividends paid to foreign subject to 30% under Sections 1441 and 1442. Treaties typically reduce the rate to 5% - 15%. Use W*-BEN. FIRPTA: the Foreign Investment in Real Property Tax Act treats gain from the sale of USRPI (United States real property interest) as if trade or business and gain as ECI (effectively connected income. Does not affect the character of the gain.
For more information, please visit us at www.givnerkaye.com
15 07-24 Puerto Rico Income Tax IncentivesBruce Givner
Instead of expatriating, it is better to consider retaining your U.S. citizenship and becoming a resident of Puerto Rico. You sign a 20 year contract with the government. As a result, as an individual, you can pay zero federal and state tax on local interest, dividends and capital gains. The incentives for business are also phenomenal: a 4% rate with profits paid to owners tax free. A business must have 3 employees of which husband and wife can count as two.
14 06-19 U.S. Treaties - How To Understand And Plan With ThemBruce Givner
IRS publications and forms; list of countries with which the U.S. has income and estate and gift tax treaties; reasons for both types of treaties; situs vs. status transfer tax treaties; German estate tax treaty as an example; treaties vs. the Internal Revenue Code; review of the basic provisions of income tax treaties, including tie-breakers, independent workers, directors, artists and athletes, students and teachers, interest, dividends, royalties, real property income and gains, Publication 901 table examples, double Irish structure.
15 06-18 Top 10 Tax Preparer And Other Tax Penalties - Not Going To Jail But ...Bruce Givner
What is the definition of a tax return preparer? What is the accuracy-related penalty? What are the primary other penalties? What is IRC Section 6694 (the preparer penalty)? How is it coordinated with the accuracy-related penalty? What are the easiest crimes to commit, e.g. obstruction of justice. What good can an opinion by a tax lawyer do for you?
Everything You Always Wanted To Know About Grantor (And Other Irrevocable) Tr...Bruce Givner
What is an irrevocable trust? How can it be flexible? How can the parents maintain a level of control? What makes an irrevocable trust a "grantor" trust and, therefore, disregarded for income tax purposes? What are the advantages of a grantor trust for asset protection planning and estate tax planning purposes? What are the disadvantages? How can you eliminate the disadvantages through the use of a "toggle" (or flip) switch? What are the tax return and EIN requirements for a grantor trust? What happens when the owner dies? When there is an outstanding installment note, does the owner's death trigger gain? Can a trust be treated as owned by someone other than the grantor? Do grantor trusts still make sense now that the estate tax rates are 40% and the income tax rates, in states like California, are even higher? Are grantor trusts here to stay?
Everything You Always Wanted To Know About Family Trusts But Were Afraid To AskBruce Givner
Family Trusts. Living Trusts. Inter Vivos Trusts. Revocable Trusts. Synonyms for trusts that are "Will substitutes." They help avoid probate and the need for a conservatorship. They help reduce the fees, including trustee and attorney fees, and delays of probate. Most of the documents are boilerplate, but why? What's wrong with using LegalZoom and other document preparation software? Must you file an IRS Form 1041 for a family trust? Must the living trust get its own EIN? What is a subtrust? What is an administrative trust? What is a grantor? A protector? A complex trust? How is competence determined? Are "no contest" clauses enforceable? Are illegitimate children "heirs"? Must a living trust be notarized? Must it be recorded? What is a "pourover" Will? What is a codicil? What is a holographic will? What is a personal property memorandum? What makes a power of attorney "durable"? What is a health care directive?
What is a "springing" power of attorney? What is a "pot" trust? What is a "specific" bequest? When should I use a corporate trustee? What's the difference between a fiduciary bond and fiduciary insurance? What is a trust certificate? What is a "blanket" assignment of assets? What is "per stirpes"? What is the rule against perpetuities?
An overview of the entire state administrative process. Learn about when you can settle during the process, some great publications to read up on, how the audit wraps up, settlement, and what to do if you don't like the audit result.
For more information, please visit us at www.givnerkaye.com
In 1989 Alaska was the first state to allow a domestic asset protection trust. In that same year Nevada and Delaware also changed their laws to allow DAPTs (also called self-settled spendthrift trusts). The question was - for 30 years - if a person in California set up a DAPT in Nevada - could a judgment creditor in California take his judgment to Nevada and have the Nevada court enforce the judgment against the California debtor's asset protection trust. Some lawyers argued "yes," citing Art. IV, Section 1 of the U.S. Constitution, the "full faith and credit clause." Other lawyers argued "No, it would be against Nevada's public policy." Finally, in June, 2019, the South Dakota Supreme Court held that it would give "full faith and credit to the California family law court order. However, it would not give full faith and credit to the enforcement against a South Dakota trust. Will this case make it to the U.S. Supreme Court? What about the on-going divorce of Ed and Marie Borsarge? The Cameron case did not involve an asset protection trust. But certainly South Dakota, Nevada and the other states will rule the same way in a case involving an asset protection trust.
Family Limited Partnerships Update - Diagrams and Bullet Points - February 6,...Bruce Givner
Normal FLP structure for estate tax planning; modifying it to amplify the extent to which it can help add a hurdle between valuable assets and some future (not currently in existence) creditor if properly aged (4 - 7 years before there is a problem) and if it has a business purpose; important points in the event of an estate tax audit, e.g., separate counsel for the children's trust; problem of timing of the funding of the assets to the FLP versus timing of the gift of LP interests; problem of the change of California's LLC act effective 1/1/14; use of FLPs with captive insurance companies, pensions, life insurance and as an alternative to an ILIT.
The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed. The “kiddie tax” rules were simplified. The net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child's tax is unaffected by the parent's tax situation or the unearned income of any siblings.
In this webinar, you learn all the tax breaks available to digital nomads and how you can qualify for each of them. We'll also review digital nomad tax basics for those who are new to filing taxes abroad or considering a move.
What You Will Learn:
- Digital nomad tax requirements and deadlines (if you're new to living abroad, some may surprise you!)
- The most popular tax exclusions, credits, and deductions for digital nomads
- Tax breaks for self-employed digital nomads
- How your location affects your taxes - and where to find tax havens to maximize savings!
- Common tax challenges for digital nomads and how to overcome them
Tax Consquences in Divorce in Washington StatePhilip Tsai
Filing status and divorce, tax implications and divorce, division of assets, gains from residence, child support and alimony, dependency exemption, and deductible costs in divorce.
What is a Qualified Personal Residence Trust in Indianapolis?Paul Kraft
You could potentially reduce your exposure to the federal estate tax through the creation of a legal device called a qualified personal residence trust. Learn more about Indianapolis qualified personal residence trust in this presentation.
Not-For-Profit Viewpoint | Substantiation Changes Proposed to Charitable Cont...CBIZ, Inc.
Proposed changes were reported in the Federal Register on September 17, 2015, that relate to the substantiation of charitable donations. Get more detailed information with the following white paper.
14 06-19 U.S. Treaties - How To Understand And Plan With ThemBruce Givner
IRS publications and forms; list of countries with which the U.S. has income and estate and gift tax treaties; reasons for both types of treaties; situs vs. status transfer tax treaties; German estate tax treaty as an example; treaties vs. the Internal Revenue Code; review of the basic provisions of income tax treaties, including tie-breakers, independent workers, directors, artists and athletes, students and teachers, interest, dividends, royalties, real property income and gains, Publication 901 table examples, double Irish structure.
15 06-18 Top 10 Tax Preparer And Other Tax Penalties - Not Going To Jail But ...Bruce Givner
What is the definition of a tax return preparer? What is the accuracy-related penalty? What are the primary other penalties? What is IRC Section 6694 (the preparer penalty)? How is it coordinated with the accuracy-related penalty? What are the easiest crimes to commit, e.g. obstruction of justice. What good can an opinion by a tax lawyer do for you?
Everything You Always Wanted To Know About Grantor (And Other Irrevocable) Tr...Bruce Givner
What is an irrevocable trust? How can it be flexible? How can the parents maintain a level of control? What makes an irrevocable trust a "grantor" trust and, therefore, disregarded for income tax purposes? What are the advantages of a grantor trust for asset protection planning and estate tax planning purposes? What are the disadvantages? How can you eliminate the disadvantages through the use of a "toggle" (or flip) switch? What are the tax return and EIN requirements for a grantor trust? What happens when the owner dies? When there is an outstanding installment note, does the owner's death trigger gain? Can a trust be treated as owned by someone other than the grantor? Do grantor trusts still make sense now that the estate tax rates are 40% and the income tax rates, in states like California, are even higher? Are grantor trusts here to stay?
Everything You Always Wanted To Know About Family Trusts But Were Afraid To AskBruce Givner
Family Trusts. Living Trusts. Inter Vivos Trusts. Revocable Trusts. Synonyms for trusts that are "Will substitutes." They help avoid probate and the need for a conservatorship. They help reduce the fees, including trustee and attorney fees, and delays of probate. Most of the documents are boilerplate, but why? What's wrong with using LegalZoom and other document preparation software? Must you file an IRS Form 1041 for a family trust? Must the living trust get its own EIN? What is a subtrust? What is an administrative trust? What is a grantor? A protector? A complex trust? How is competence determined? Are "no contest" clauses enforceable? Are illegitimate children "heirs"? Must a living trust be notarized? Must it be recorded? What is a "pourover" Will? What is a codicil? What is a holographic will? What is a personal property memorandum? What makes a power of attorney "durable"? What is a health care directive?
What is a "springing" power of attorney? What is a "pot" trust? What is a "specific" bequest? When should I use a corporate trustee? What's the difference between a fiduciary bond and fiduciary insurance? What is a trust certificate? What is a "blanket" assignment of assets? What is "per stirpes"? What is the rule against perpetuities?
An overview of the entire state administrative process. Learn about when you can settle during the process, some great publications to read up on, how the audit wraps up, settlement, and what to do if you don't like the audit result.
For more information, please visit us at www.givnerkaye.com
In 1989 Alaska was the first state to allow a domestic asset protection trust. In that same year Nevada and Delaware also changed their laws to allow DAPTs (also called self-settled spendthrift trusts). The question was - for 30 years - if a person in California set up a DAPT in Nevada - could a judgment creditor in California take his judgment to Nevada and have the Nevada court enforce the judgment against the California debtor's asset protection trust. Some lawyers argued "yes," citing Art. IV, Section 1 of the U.S. Constitution, the "full faith and credit clause." Other lawyers argued "No, it would be against Nevada's public policy." Finally, in June, 2019, the South Dakota Supreme Court held that it would give "full faith and credit to the California family law court order. However, it would not give full faith and credit to the enforcement against a South Dakota trust. Will this case make it to the U.S. Supreme Court? What about the on-going divorce of Ed and Marie Borsarge? The Cameron case did not involve an asset protection trust. But certainly South Dakota, Nevada and the other states will rule the same way in a case involving an asset protection trust.
Family Limited Partnerships Update - Diagrams and Bullet Points - February 6,...Bruce Givner
Normal FLP structure for estate tax planning; modifying it to amplify the extent to which it can help add a hurdle between valuable assets and some future (not currently in existence) creditor if properly aged (4 - 7 years before there is a problem) and if it has a business purpose; important points in the event of an estate tax audit, e.g., separate counsel for the children's trust; problem of timing of the funding of the assets to the FLP versus timing of the gift of LP interests; problem of the change of California's LLC act effective 1/1/14; use of FLPs with captive insurance companies, pensions, life insurance and as an alternative to an ILIT.
The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net capital gains and qualified dividends were not changed. The “kiddie tax” rules were simplified. The net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates. Thus, the child's tax is unaffected by the parent's tax situation or the unearned income of any siblings.
In this webinar, you learn all the tax breaks available to digital nomads and how you can qualify for each of them. We'll also review digital nomad tax basics for those who are new to filing taxes abroad or considering a move.
What You Will Learn:
- Digital nomad tax requirements and deadlines (if you're new to living abroad, some may surprise you!)
- The most popular tax exclusions, credits, and deductions for digital nomads
- Tax breaks for self-employed digital nomads
- How your location affects your taxes - and where to find tax havens to maximize savings!
- Common tax challenges for digital nomads and how to overcome them
Tax Consquences in Divorce in Washington StatePhilip Tsai
Filing status and divorce, tax implications and divorce, division of assets, gains from residence, child support and alimony, dependency exemption, and deductible costs in divorce.
What is a Qualified Personal Residence Trust in Indianapolis?Paul Kraft
You could potentially reduce your exposure to the federal estate tax through the creation of a legal device called a qualified personal residence trust. Learn more about Indianapolis qualified personal residence trust in this presentation.
Not-For-Profit Viewpoint | Substantiation Changes Proposed to Charitable Cont...CBIZ, Inc.
Proposed changes were reported in the Federal Register on September 17, 2015, that relate to the substantiation of charitable donations. Get more detailed information with the following white paper.
Law firms are just like any other organization, sometimes achieving great success, and other times going defunct. This article goes over the latter firms.
Chapter 12 Duties as a WhistleblowerWhistleblowerA whis.docxcravennichole326
Chapter 12: Duties as a Whistleblower
Whistleblower
A whistleblower is an employee or former employee who reports misconduct to people or entities that have the power and presumed willingness to take corrective action.
Whistleblowers can be internal or external.
Whistleblower Motivations
Whistleblower motivations include:
Revenge
Reputation Preservation
Altruism
Collecting financial rewards
Fasle Claims Act
Whistleblower (cont)
Whistleblower-
One of the most well known whistleblowers is Jeffrey Wigand, who exposed the Big Tobacco scandal, revealing that executives of the companies knew that cigarettes were addictive while approving the addition of known carcinogenic ingredients to the cigarettes.
http://www.imdb.com/title/tt0140352/trailers-screenplay-E11632-10-2
Think Russell Crowe in the movie The Insider.
More recent whistleblowers include…..
Whistleblower (cont)
Cynthia Cooper (Worldcom), Coleen Rowley (FBI), and Sherron Watkins (Enron)
“their lives may not have been at stake, but Watkins, Rowley and Cooper put pretty much everything else on the line. Their jobs, their health, their privacy, their sanity--they risked all of them to bring us badly needed word of trouble inside crucial institutions”
Whistleblower Programs
FeatureIRSDodd-Frank ActFocusTax violationsFederal securities laws violations, including bribery, fraudulent accounting, and insider tradingSubmitted information Secret information or publicly available information Only “original”, nonpublic information Minimum threshold for recoveryOver $2 million Over $1 million Typical range of award15% to 30% of IRS Recovery15% to 30% of SEC RecoveryAnonymity protected? Yes, usuallyYesProtection against workplace retaliation?No Yes
Whistleblower Laws
Section 806 of SOX
Only applies to publicly traded companies
File a complaint with the Department of Labor (DOL)
If DOL hasn’t ruled on it within 180 days, it goes to federal court or a civil suit may be filed
Remedies of employee include relief “to make the employee whole”, compensatory damages (same job back, back pay, special damages as result of action)
Whistleblower Laws (cont)
Do Whistleblower laws (specifically SOX section 806 provisions) work?
whistle-blowers still face a painful cost-benefit decision: whether a lawsuit with uncertain chances of success is worth the professional and personal sacrifices that will assuredly be required
Many employees have to change industries after filing suit, whether the case has merit or not
A study that looked at 470 cases filed between 2002-2005, the whistleblower won only 3.6% of the time.
Whistleblower Laws (cont)
What can/should employers do?
Have an independently-operated whistleblower complaint system. If the system is operated by personnel skilled in the underlying accounting, auditing, and internal control issues, proper information will be immediately collected, so that investigations are cost-effective and complete.
Must be overseen by audit com ...
Franchise Disclosure Document of 1-800-Flooded Franchises for sale. Includes information on training, costs, franchise fees, lawsuits, and information on the management and background of the franchising company.
American International Group, Inc., also known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. As of December 31, 2016, AIG companies employed 56,400 people.The company operates through three core businesses: General Insurance, Life & Retirement, and a standalone technology-enabled subsidiary
The Federal Corrupt Practices Act (“FCPA”) prohibits a U.S. company or person from bribing foreign government officials to obtain a business advantage. Along with this seemingly simple restriction comes accounting and record keeping requirements with which companies must comply. The FCPA requires the implementation of a compliance program which addresses FCPA concerns and establishes an FCPA corporate policy. This webinar covers the basics of the FCPA, including an introduction to the regulators, both the SEC and DOJ, and recent communications to the public regarding the FCPA from these regulatory bodies. The standards for a compliance program review is analyzed, including what makes a program current and effective as well as how often the program requires review. The role of a compliance coordinator is discussed, as is record keeping, training, and retaliation. Finally, meals and entertainment, gifts, travel, charitable contributions, and hiring are all discussed with reference to recent government actions and legal decisions.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/foreign-corrupt-practices-act-2019/
Things That Would Be Helpful To Know In My New Position As In-House Counsel O...Robert Wortelboer
This presentation will provide valuable insight to those who are relatively new in their role as in-house counsel for a medical professional liability insurer through the identification and resolution of legal issues that are uniquely relevant to property and casualty insurers that write medical professional liability insurance.
Mercer Capital's Tennessee Family Law | Q1 2018 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
Similar to 15 02-19 "C" Corporation Asset Sale - Martin Ice Cream and Bross: Personal Goodwill To Reduce the "Double" Tax (20)
14 12-18 Everything You Always Wanted To Know About Public Charities But Were...Bruce Givner
Tax deductible vs. tax exempt; charities vs. other tax-exempt entities such as trade associations; UBTI - unrelated business taxable income; Forms 990 and 990-T; self-dealing rules; Section 4940 and the 2% excise tax on investment income, 4941 and the taxes on self-dealing, 4942, 4943, 4944 and 4945; intermediate penalties and Section 4958; private foundations vs. public charities; private operating foundations; medical research organizations; types of public charities;
What information would your trustee or executor need and/or want to know if you died suddenly? Where is the information about your assets, debts, estate planning documents, relatives, retirement benefits, insurance policies? This checklist is designed to get you to put all of that information in one place, and to update it regularly.
14 09-04 Everything You Always Wanted To Know About Post-Mortem PlanningBruce Givner
Portability vs. disclaimer to a bypass trust; getting rid of an unwanted bypass trust; notice of proposed action vs. a 17200 petition; valuable information for the successor trustee; Heggstad assignment of assets; modified financial statement for the successor trustee; funding the subtrusts; first spouse post-mortem checklist; Prop. 13 problems; 16061.7 notice;
California and federal forms; does it make sense to use non-California entities?; asset protection benefits; 3 different types of asset protection; problems with LLCs; gross receipts tax; best states for LLCs; the best structure; the rollout LLC; FLPs using LLCs; limited partnerships instead of LLCs; LLCs for tax-exempt entities;
14 05-17 the most common flaws in estate planningBruce Givner
The most common flaws in estate planning including the failure to get started, the failure to maintain fresh documents, the failures in many documents, failures in asset transfers, failure to consider family issues, and failures through overplanning and underplanning.
How Parents Keep Control Both During Their Lifetimes And After They Are DeadBruce Givner
Irrevocable trusts are required if you want to engage in estate tax planning, asset protection planning (creditor planning) and even in a great deal of income tax (including capital gains tax) planning. However, parents are not thrilled at the idea of having to give away assets to a trust that they cannot revoke!! Do you mean that they can't change it? What if they change their minds about their children? About the trustee? Happily, there are many ways to make the parents comfortable that even though the trust itself is unable to be revoked, it is flexible. The parents, of course, pick as the initial trustee the person they trust to do whatever he or she is told without question but simply out of loyalty. More importantly, the parents can - at any time, without a reason - remove the trustee and name a new one (as long as the new one is not "related or subordinate" as defined in IRC Section 672(c)). The parents can advise the trustee to drop the assets down into a single member LLC and appoint the parents as the non-managing members. The trust can have a protector who can be given the power to remove the trustee; to change the allocation among the children; to add grandchildren and spouses of heirs and charities as beneficiaries; to change the manner of distribution to the heirs. Under California law if all of the beneficiaries and the grantors agree, they can amend an irrevocable trust without having to go to court. There are also other ways to change an irrevocable trust, e.g., decanting to a new trust with better provisions. The trust can start off as a grantor (disregarded) trust for income tax purposes and it can "flip" or "toggle" to a complex trust and, perhaps, flip back again. So, the goal of this presentation is to make people aware that there are ways to make parents comfortable with irrevocable trusts, without which planning would be difficult, if not impossible.
Investing Retirement Plan Assets: What Are The Limits?Bruce Givner
The Internal Revenue Code and the Title I of ERISA (administered by the U.S. Department of Labor) have restrictions on how retirement plan assets can be invested. For example, certain investments will cause UBTI (unrelated business taxable income) to what is otherwise a tax-exempt trust. Certain investments may cause prohibited transactions with the resulting excise tax under IRC Section 4975. There are also the general fiduciary rules governing trustees generally, e.g., the duty to diversify. This handout is designed to advise the trustee and the plan sponsor on how to avoid the pitfalls.
Everything you ever wanted to know about trustees: What does it mean to be a trustee? What are your responsibilities and liabilities? What makes a good trustee?
For more information, please visit us at www.givnerkaye.com
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
Defending Weapons Offence Charges: Role of Mississauga Criminal Defence LawyersHarpreetSaini48
Discover how Mississauga criminal defence lawyers defend clients facing weapon offence charges with expert legal guidance and courtroom representation.
To know more visit: https://www.saini-law.com/
Synopsis On Annual General Meeting/Extra Ordinary General Meeting With Ordinary And Special Businesses And Ordinary And Special Resolutions with Companies (Postal Ballot) Regulations, 2018
Lifting the Corporate Veil. Power Point Presentationseri bangash
"Lifting the Corporate Veil" is a legal concept that refers to the judicial act of disregarding the separate legal personality of a corporation or limited liability company (LLC). Normally, a corporation is considered a legal entity separate from its shareholders or members, meaning that the personal assets of shareholders or members are protected from the liabilities of the corporation. However, there are certain situations where courts may decide to "pierce" or "lift" the corporate veil, holding shareholders or members personally liable for the debts or actions of the corporation.
Here are some common scenarios in which courts might lift the corporate veil:
Fraud or Illegality: If shareholders or members use the corporate structure to perpetrate fraud, evade legal obligations, or engage in illegal activities, courts may disregard the corporate entity and hold those individuals personally liable.
Undercapitalization: If a corporation is formed with insufficient capital to conduct its intended business and meet its foreseeable liabilities, and this lack of capitalization results in harm to creditors or other parties, courts may lift the corporate veil to hold shareholders or members liable.
Failure to Observe Corporate Formalities: Corporations and LLCs are required to observe certain formalities, such as holding regular meetings, maintaining separate financial records, and avoiding commingling of personal and corporate assets. If these formalities are not observed and the corporate structure is used as a mere façade, courts may disregard the corporate entity.
Alter Ego: If there is such a unity of interest and ownership between the corporation and its shareholders or members that the separate personalities of the corporation and the individuals no longer exist, courts may treat the corporation as the alter ego of its owners and hold them personally liable.
Group Enterprises: In some cases, where multiple corporations are closely related or form part of a single economic unit, courts may pierce the corporate veil to achieve equity, particularly if one corporation's actions harm creditors or other stakeholders and the corporate structure is being used to shield culpable parties from liability.
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15 02-19 "C" Corporation Asset Sale - Martin Ice Cream and Bross: Personal Goodwill To Reduce the "Double" Tax
1. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
SUITE 445
12100 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
www.GivnerKaye.com
BRUCE GIVNER
(bruce@GivnerKaye.com)
OWEN D. KAYE
(owen@GivnerKaye.com)
KATHLEEN GIVNER
(kathy@GivnerKaye.com)
NEDA BARKHORDAR
(neda@GivnerKaye.com)
PHONE (310) 207-8008
(818) 785-7579
FAX (310) 207-8708
(818) 785-3027
February 19, 2015
“C” Corporation Asset Sale
Martin Ice Cream and Bross: Personal Goodwill To Reduce The “Double” Tax
Introduction.
1. Problem Of Sale Of “C” Corporation.
Buyers want to buy assets.
Assume Joe’s basis in the stock is zero. Assume the corporation’s basis in its assets
is zero. Assume the buyer pays $10,000,000 for the assets. The corporate tax is
roughly 34% federal and 8.84% deductible state for about 40% leaving $6,000,000.
Joe then liquidates the corporation and pays 37.1% ($2,226,000), leaving $3,774,000,
for a total tax bite of 62.26%.
By contrast, had it been an “S” corporation, assuming no ordinary income assets, the
tax would have been 33.1% (no 3.8% tax on net investment income) so Joe would
have netted $6,690,000. The difference between the two is $2,916,000, a 29.16% tax
differential.
2. Personal Goodwill.1
2.1. What Is it?
1
Reinstein and Weg, “Personal Service, Loan-Outs, and Other `C’ Corporations – Are They Still Viable? The
Current State of the Art,” 2006 USC Institute.
2. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 2 of 23
2.2. What Are The Benefits?
Selling shareholders’ gain from the sale of personal goodwill is capital gain.
Acquired business does not have entity-level gain on the sale of personal goodwill.
Buyer of personal goodwill may be entitled to amortization deductions under §197.
2.2. What Are The Characteristics?
Personal Goodwill Characteristics
No non-compete agreement between the selling shareholder and the company.
Business is highly dependent on individual’s personal relationships, reputation, skills,
know-how.
Individual’s service is important to the sales process.
Operations in which shareholders are highly involved.
Businesses with few and high-volume customers.
Company is highly technical, specialized, or engaged in professional services.
Company has contracts that are terminable at will.
More common in companies with higher portion of intangible assets.
Loss of key individual would negatively impact company’s revenue and/or profitability.
Business Goodwill Characteristics
Non-compete agreement exists between the selling shareholder and the company.
3. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 3 of 23
Larger business with formal organizational structure, processes, and controls.
Sales are generated from company brand name recognition, company sales team.
Businesses with diversified customer base.
Manufacturing businesses or companies that are asset intensive.
Selling shareholder is not intimately involved with the business.
Companies that have deep management teams.
Companies that have long-term contracts with customers.
Loss of key individual would not materially impact the revenue and/or profitability of the
company, or the individual could be replaced easily.
3. Employee Compensation.
4. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 4 of 23
Case Law.
1. Martin Ice Cream.2
2
110 T.C. 189 (1998).
5. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 5 of 23
2. Norwalk.3
A two-shareholder accounting corporation elected to liquidate. Although each
shareholder had an employment agreement which contained a non-compete and
nondisclosure provision, the agreements expired before the liquidation. The two former
shareholders promptly joined an existing accounting partnership and transferred assets
distributed to them to the new practice.
3
T.C. Memo 1998-279.
6. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 6 of 23
3. Solomon.4
The case involved the sale of a corporate division of Solomon Colors, Inc. that mined,
milled, and sold a particular type of iron ore to the foundry, fertilizer, and cement industries.
Prince Manufacturing Co. paid $1.5 million, with $1.4 million allocated to a customer list and a
covenant not to compete. The remaining $100,000 was allocated to the sale of the ore
business and equaled the equipment value. The terms of the CNTC stated that Solomon
Colors and the individual signatories (Robert and Richard Solomon and their wives) would
not compete with Prince. Of the $1.5 million purchase price, $700,000 was paid directly to
the corporation’s majority shareholders, a father and son who were the company’s chief
executives. The taxpayers claimed that a portion of the asset labeled “customer list” in the
agreement represented relationships with customers, with whom they had built relationships
4
T.C. Memo 2008-102.
7. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 7 of 23
over many decades, and personal goodwill belonging to Robert Solomon and Richard
Solomon. The IRS claimed they sold assets that were customer lists distributed from the
company.
The Tax Court ruled against the taxpayers noting the following. First, nothing in the
agreement between the parties made reference to the sale of personal goodwill. The asset
purchase agreement contained conflicting provisions as to whether payments to
shareholders were for customer lists or non-compete payments. Second, the Tax Court did
not find that the value of Solomon Colors in the market was due to the quality of service and
customer relationships developed by Robert and Richard Solomon. Rather, since the
company was a processing and manufacturing business, as opposed to a personal services
business, the business did not depend on the employee/owners for its success. Finally,
although the taxpayers entered into non-compete agreements, they did not sign employment
or consulting agreements. Since the shareholders were not hired by the buyer, their
personal attributes were not available to the buyer after the sale. These facts prompted the
Tax Court to conclude that it was unlikely Prince was buying personal goodwill. The Tax
Court concluded that the proceeds paid directly to the shareholders were actually attributable
to their CNTC rather than for a customer list or personal goodwill.
4. Howard.5
In 1980, Dr. Larry Howard (dentist) incorporated his practice and was its sole
shareholder, officer, and director. He entered into an employment agreement and a covenant
not to compete with the corporation. The covenant lasted as long as he held any stock of the
corporation plus 3 years.
In 2002, Dr. Howard and Howard Corporation sold the practice to Dr. Brian Finn and
his personal service corporation. In that agreement (the Asset Purchase Agreement), Dr.
Howard was allocated $549,900 for his personal goodwill and $16,000 for consideration for a
covenant not to compete with Finn Corporation. Howard Corporation received $47,100 for its
assets.
5
106 AFTR 2
nd
¶2010-5140 (DC WA 7/30/2010).
8. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 8 of 23
Dr. Howard and his wife filed a joint 2002 return and reported $320,358 as long-term
capital gain income from the sale of goodwill to Finn Corporation. On audit, IRS re-
characterized the sale of the goodwill as a corporate asset and treated the amount received
by the Howards from the sale to Finn Corporation as a $320,358 dividend from Dr. Howard's
PSC. IRS determined that there was a $60,129 deficiency and $14,792 interest owed based
on the difference in long-term capital gain rates and dividend income rates. The Howards
paid the amount, filed a refund claim, and eventually filed a refund suit with the court.
The district court found that the goodwill was a corporate asset of Howard Corporation,
and that the Howards weren't entitled to a refund. The court noted that courts have
distinguished between personal and corporate ownership of goodwill depending on whether
the employee had an ongoing employment contract and a covenant not to compete. The
Court concluded that Dr. Howard was a Howard Corporation employee with a covenant not to
compete with Howard Corporation from '80 through 2003 (plus three years, or 2006). Any
goodwill generated during that time period was Howard Corporation goodwill. If an employee
works for a corporation under contract and with a CNTC with that corporation, as Dr. Howard
did, then the corporation, and not the individual professional, owns the goodwill that is
generated from the professional's work. Dr. Finn testified that the price for the dental practice
had been presented and accepted, without negotiation, and that he didn't recall any
discussion as to the allocation of the proceeds.
5. Kennedy.6
James Kennedy was engaged in an employee benefits consulting business since
1990. In 1995, the sole proprietorship was incorporated as KCG International, a C
corporation. In 2000, the business was sold to Mack & Parker (“M&P”). The parties
executed a final purchase-and-sale agreement that consisted of a goodwill agreement,
consulting agreement, and asset purchase agreement. Under the agreements, Kennedy
would work with M&P as a consultant, without salary, and continue to provide services to his
former clients for the next five years, after which he planned to retire. Also, under the
6
T.C. Memo 2010-206 (9/22/2010).
9. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 9 of 23
agreements, Kennedy and KCG would not compete with M&P for five years. M&P would
make a $10,000 lump-sum payment to KCG and annual payments to KCG and Kennedy for 5
years. The annual payment amounts would depend on revenue received from Kennedy’s
former clients and were allocated 75% to Kennedy in exchange for the “personal goodwill”
associated with his customer relationships, his know-how, and his promise not to compete or
otherwise engage independently in employee benefits consulting. The other 25% was
designated as payment for consulting services. The asset purchase agreement required that
KCG convey its relationships with 46 clients. The goodwill agreement required Kennedy to
convey his personal relationships with the same 46 clients. Almost all of them had been
long-time clients of Kennedy even before he incorporated.
Kennedy began work with M&P and devoted far more time in his new role than he
anticipated. During the first year after the transaction, 46% of M&P’s revenue was traceable
to time billed personally by Kennedy. Kennedy did not receive any wages or fees from
M&P other than payments under the sale documents. After 18 months of this
arrangement, Kennedy negotiated a salary in addition to the payments.
First, the IRS argued that KCG, not Kennedy, owned the customer list and without the
customer list, Kennedy could not transfer goodwill. Second, the IRS argued that Kennedy
had no proof of the existence of any goodwill asset since no appraisal of the personal
goodwill was provided to the court. Third, the IRS contended that even if Kennedy was the
owner of personal goodwill, this asset should not be considered a saleable asset. Any
personal goodwill would be based upon the value of Kennedy’s relationships with his
customers, which the IRS maintains would have no value unless Kennedy continued to
perform services for the clients.
The Tax Court agreed with the IRS that Kennedy did not sell personal goodwill to
M&P, but not for the same reasons. First, the Tax Court acknowledged that a payment to an
individual who provides ongoing services could be considered a payment for goodwill.
However, in the instant case, the Tax Court was convinced the payments to Kennedy were
for services rather than personal goodwill since he worked for M&P for five years,
10. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 10 of 23
received little compensation for his services for 18 months, and agreed not to compete for
five years.
6. H&M, Inc.7
Harold Schmeets was the sole shareholder of Harvey Insurance Agency, Inc. When
people came to Harvey Insurance to buy insurance, they were buying it from Harold
Schmeets. He had far more name recognition as an individual than Harvey Insurance did as
a firm. Harvey Insurance sold its biggest asset, the insurance-brokerage business, to its
main competitor, a local bank, in '92. Schmeets went to work for the bank that bought the
brokerage business.
Under the purchase agreement, Harvey Insurance agreed to sell all files, customer
lists, insurance agency or brokerage contracts, the name of Harvey Insurance, and all the
goodwill of Harvey Insurance to the bank for $20,000. The agreement was contingent on the
execution of an employment agreement with Schmeets. It also contained a noncompete
clause which provided that Harvey Insurance and Schmeets wouldn't compete with the bank
for 15 years. Schmeets became the manager of the bank's insurance agency for a six-year
term. The bank promised to pay Schmeets a base wage of $38,936, annual variable
compensation equal to the greater of $50,000 or 45% of net adjusted income for the year,
and deferred compensation of $74,000 at the end of the six-year term. The total
compensation under the agreement was over $600,000 for his services during the six years.
Schmeets kept the corporation (renamed H&M, Inc. after the sale) active to exploit his
two patented inventions.
On audit, IRS contended that much of Schmeets' wages were actually disguised
purchase price payments to his corporation.
IRS argued that a substance-over-form analysis showed that the value of the assets
that the bank bought should include not only the $20,000 purchase price, but also the
$38,936 annual base wage and $74,000 deferred compensation under the employment
agreement. It claimed that only the annual variable compensation (the greater of $50,000 or
7
T.C. Memo 2012-290.
11. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 11 of 23
45% of net adjusted income for the year) actually represented payment for Schmeets'
services. IRS contended that this allocation more accurately reflected the FMV of Schmeets'
services to the bank and took account of goodwill and the corporation's other intangible
assets. IRS argued that the parties undervalued the assets of Harvey Insurance in the sale
so that the bank could deduct the compensation it paid to Schmeets, and he could avoid
being taxed twice on the proceeds of the sale.
H&M argued that recharacterizing all of the compensation payments as purchase price
payments was inappropriate because the allocation didn't reflect the economic realities of the
transaction. It maintained that Schmeets' compensation under the agreement was
reasonable because the bank needed him to keep the insurance business going, and he had
significant responsibilities as the manager of the bank's agency. H&M further contended
that any goodwill of the business was attributable to Schmeets personally. And it
pointed out that neither party focused on the tax consequences of the transaction. Instead,
both parties wanted to create an employment relationship and both consistently treated the
deal as if they had.
The Tax Court found that the payments to Schmeets weren't disguised purchase price
payments to H&M. It was satisfied that Schmeets and the bank were genuinely interested in
creating an employment relationship and weren't just creating paperwork to produce the tax
consequences they wanted.
The court concluded that, in light of Schmeets's personal relationships, his experience
in running all facets of an insurance agency and his responsibilities as manager of the bank's
insurance agency, the compensation that the bank paid him was reasonable. The
employment agreement contained an extensive list of duties that Schmeets was required to
perform. Not only was Schmeets an insurance salesman, he also had significant
management and bookkeeping responsibilities. He went from working around 40 hours per
week before the sale to double that afterward.
IRS failed to specify what other purchased intangible assets, other than the name
Harvey Insurance, it thought weren't accounted for in the purchase price. It didn't provide any
12. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 12 of 23
persuasive evidence that the name of the corporation had much value other than its
connection with Harold Schmeets himself. The Court found that the name Harold Schmeets
had by far more name recognition in the community than Harvey Insurance.
While the Court disagreed with IRS that the amounts the bank paid Schmeets were
disguised purchase price payments for goodwill, it did agree that the payments weren't simply
the FMV of his services. Schmeets not only brought his personal goodwill to the bank, he
also signed a noncompete provision. However, since Schmeets' individual tax liability wasn't
before the Court, it found that it didn't need to determine the exact allocation between what
he was paid for his services to the agency, his personal goodwill, and his promise not to
compete.
7. Bross Trucking.8
Chester Bross started in the road construction business in 1966. He was extremely
knowledgeable about the industry and contributed to nearly all facets of the Bross family
businesses. He was responsible for arranging and completing the projects in which Bross
Construction participated. He personally developed relationships with the necessary entities
to work in the road construction industry. The “family business umbrella” included Bross
Trucking which was founded in 1982 and owned 100% by Mr. Bross through his revocable
living trust. Bross Trucking engaged in hauling construction-related materials and equipment
for road construction projects. Bross Trucking leased most of its equipment from another
wholly owned Bross entity, CB Equipment, through yearly leases.
Bross Trucking had regulatory problems including maintaining records on drivers and
safety. Mr. Bross felt that the company’s reputation with regulatory authorities was causing
its trucks to be stopped more often. If the problem continued it could disrupt other aspects of
the family business, since the road construction relied on the hauling provided by the trucking
company.
The solution was to form LWK Trucking which was owned by Mr. Bross’s three sons
and a minority shareholder. Bross Trucking continued to exist but no longer operated. No
8
T.C. Memo 2014-107.
13. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 13 of 23
assets were transferred from Bross Trucking to LWK, although that is not how the IRS looked
at it.
The IRS view was that Bross Trucking had distributed its goodwill to Mr. Bross who
then made a gift of the goodwill to his sons. With penalties the IRS was looking for over $2.7
million in corporate income tax and gift tax.
The Tax Court followed the logic Martin Ice Cream logic
…….. there are two regimes of goodwill: (1) personal goodwill developed and
owned by shareholders; and (2) corporate goodwill developed and owned by
the company. Bross Trucking’s goodwill was primarily owned by Mr. Bross
personally, and the company could not transfer any corporate goodwill to Mr.
Bross in tax year 2004.
A factual problem for the IRS was that it is difficult to argue that a company facing the
possibility of being shut down has much in the way of goodwill. The impending suspension
would cause customers to reevaluate whether to trust Bross Trucking and continue to do
business with it. This is the antithesis of goodwill: Bross Trucking could not expect
continued patronage because its customers did not trust it and did not want to continue doing
business with it.
8. Estate of Franklin Z. Adell.9
Franklin Z. Adell died on August 13, 2006, owning a 100% interest in STN.Com, Inc.
(“STN.Com”), a cable uplinking company. STN.Com’s sole business purpose was to
broadcast an urban religious program channel, “The Word Network” (“The Word”). It was Mr.
Adell’s son, Kevin, who created and managed STN.Com. Furthermore, he held all of the key
business relationships.
Pursuant to the services agreement, and continuing through Mr. Adell’s date of death,
The Word paid STN.Com at least 95% of its revenue each month (which was an amount
greater than STN.Com’s actual costs). The Word’s only source of revenue was from
broadcasting contracts that Kevin negotiated and entered into with the religious community.
9
T.C. Memo 2014-155 (8/4/14).
14. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 14 of 23
STN.Com’s primary source of income came from the program fees it received from The
Word.
The estate’s first appraiser made a number of adjustments to STN.Com’s reported
financial results to more accurately reflect STN.Com’s normalized ongoing operating
performance. Among the adjustments was a reduction in officers’ salaries and wages to
reflect market rates. He also adjusted STN.Com’s operating expenses to include an
economic charge for Kevin’s personal goodwill. The adjustment was appropriate because
the success of STN.Com depended heavily on Kevin’s personal relationships with the board
of directors of The Word. Kevin did not have a noncompete agreement with STN.Com,
and, as a result, a potential buyer would not be expected to acquire STN.Com without the
retention of Kevin. The economic charge for Kevin’s personal goodwill ranged from 37.2% to
43.4% of sales over the historical period and from 43.7% to 44.1% of sales over the
projection period.
After making adjustments to the enterprise value to account for STN.Com’s cash and
cash equivalents, interest-bearing debt, and nonoperating assets, Mr. Risius concluded that
the FMV of the STN.Com stock on Mr. Adell’s date of death was ≈ $9.3 million.
Respondent’s expert witness valued the STN.Com stock using the discounted cash
flow method. Mr. Burns addressed the importance of Kevin’s relationship with The Word to
STN.Com’s continued business operations. Instead of applying an economic charge for
Kevin’s personal goodwill similar to the one found in Mr. Risius’ first valuation report, Mr.
Burns concluded that a hypothetical investor would anticipate retaining Kevin as an officer of
STN.Com and would need to compensate Kevin at an acceptable rate of 8.1% of sales. He
concluded that the Fair Market Value of the STN.Com stock on Mr. Adell’s date of death was
$26,341,030.
The Tax Court found that the original value of $9.3 million was the most persuasive.
The Court also rejected the valuation conclusion of Mr. Burns saying that he not only failed to
apply an economic charge for Kevin’s personal goodwill but also gave too low an estimate of
acceptable compensation for Kevin.
15. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 15 of 23
The Court agreed with estate’s expert that Kevin’s goodwill was personally owned
independent of STN.Com and that STN.Com’s success was heavily dependent on The
Word because of their symbiotic relationship.
Planning.
1. Valuation.
Typically, when planning for transactions involving personal goodwill, an exploratory
phase is necessary to determine the existence of personal goodwill by assessing the facts
and circumstances. To the extent personal goodwill is likely to exist, later phases may be
warranted to estimate the value of the tangible assets, identifiable intangible assets, and
personal goodwill to be acquired.
While each case is unique, a basic approach to the valuation process usually includes
an assessment of the aggregate value of the business and the personal goodwill is
captured by considering the “as-is” aggregate cash flows being generated. The value derived
in this scenario is contrasted with the value in a scenario in which the key person is no longer
participating in the business or, taken to an extreme, directly competes with the existing
business. In this scenario, to the extent personal goodwill exists, the “as-is” aggregate cash
flows would be negatively impacted. The difference in value between these two scenarios
can be characterized as the value of the personal goodwill.
2. Documentation.
Non-compete agreements that exist before the transaction have the impact of
transferring personal goodwill to business goodwill.
Employment and non-compete agreements entered into during the transaction
process support the allocation to personal goodwill.
16. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 16 of 23
The documents should clearly state that personal goodwill is being acquired and
exactly what the seller’s role/duties are post-transaction to ensure that the seller’s personal
goodwill becomes the acquirer’s business goodwill.
2.1. Distribution Agreement.
2.2. Management Agreements.
2.3. License & Franchise Agreements.
17. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 17 of 23
3. “S” Election.
If possible, done enough years in advance.
EXHIBIT 1
August 2008 • Vol. 28 No. 7 | An E-Publication of the Los Angeles County Bar Association
Gimme 5: What Every Lawyer Should Know about
Non-Compete Agreements in California
By Holly R. Lake, an associate in Paul, Hastings, Janofsky & Walker LLP’s Los Angeles
office, who practices employment law; and Cindy J. Morgan, also an associate in the firm’s Los
Angeles office, who also practices employment law. They can be reached at
Hollylake@paulhastings.com and Cindymorgan@paulhastings.com, respectively. This article is
provided for informational purposes only and does not constitute legal advice.
Non-compete agreements have been the subject of much debate in California
where their application is often contested and somewhat limited. The starting place
must always be recognition of the general rule: In California, non-compete
agreements are presumptively unenforceable except in very limited
circumstances. Despite the general unenforceability of non-compete agreements, in
very limited circumstances their use can be beneficial to employers. Before trying
to use a non-compete agreement in California, several complex considerations must
be fully explored. Here are 5 important issues for California practitioners to consider
when contemplating the use of, drafting, or reviewing agreements containing post-
employment restrictions.
1. What is a non-compete agreement?
A non-compete agreement (also known as a covenant not to compete) is a
contract between an employee and employer that, after the termination of
employment, restricts the former employee’s ability from working in a similar
profession or trade in competition with the former employer in a specific
geographic area for a set period of time. In states that recognize the general
enforceability of such agreements, the general policy supporting non-compete
agreements is an effort to prevent unfair competition that would occur if the former
employee were allowed to compete against the former employer for a specific period
of time. The legitimate business interest most often cited is “the legitimate interest
18. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 18 of 23
an employer has in safeguarding that which has made his business successful and
to protect himself against deliberate surreptitious commercial piracy. Thus
restrictive covenants will be enforceable to the extent necessary to prevent the
disclosure or use of trade secrets or confidential customer information.” Reed,
Roberts Assocs., Inc. v. Strauman, 40 N.Y. 2d 303, 308, 353 N.E. 2d 590, 593, 386
N.Y.S. 2d 677, 680 (N.Y. 1976).
2. Issues with non-compete agreements specific to California.
In some states, non-compete agreements may be enforced if they are
reasonable in time and geographic scope. However, in 1941, California enacted
California Business and Professions Code §16600, a broadly interpreted provision
that prohibits many restraints on trade. §16600 invalidates most non-compete
agreements on the theory that an individual cannot be barred from seeking
employment in a profession in which he or she has been trained. Nonetheless,
despite §16600, California courts have recognized very narrow exceptions to the
general prohibition against the enforcement of non-compete agreements.
3. Specific areas where non-competes are permitted by statute.
Within the California Business and Professions Code, there are a few limited
exceptions to the general rule against the enforcement of non-compete agreements,
including:
1) in some circumstances where the buyer of a business wants to prohibit
the seller from competing with the newly acquired company; and
2) in the context of the dissolution of a business partnership or the
dissociation of a partner from a partnership.
4. Judicially created exceptions.
In addition to the statutory exceptions, California courts have carved out
narrow exceptions to the rule against non-compete agreements.
First, a non-compete agreement may be upheld if it is necessary to protect an
employer’s trade secrets. Employers rarely prevail under this judicially created
exception, and any attempt to craft such a non-compete implicates several complex
business and legal concerns beyond the scope of this article. Suffice it to say that
trying to enforce a non-compete based on the notion that it is necessary to protect a
client’s trade secrets involves the complicated substantive area of trade secret law in
California, and brings into play sensitive business concerns.
20. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 20 of 23
in existence immediately prior to such acquisition and the trade secrets and other
confidential information owned by Sellers immediately prior to such acquisition. All
capitalized terms not otherwise defined herein shall have the respective meanings set forth in
the Purchase Agreement.
NOW THEREFORE, in consideration of the premises and the mutual representations,
warranties, covenants and agreements contained in this Agreement and in the Purchase
Agreement, the parties hereto, intending to be legally bound, agree as follows:
1. Noncompetition; Confidential Information.
(a) For a period of five (5) years from and after the date hereof,
unless expressly consented to in writing by Buyer, neither OWNER nor any Affiliate (as
hereinafter defined) shall, directly or indirectly: (i) engage, anywhere in the Territory (as
defined in Section 1(c) below), in activities which include any aspect of the Business; (ii) be
or become a stockholder, partner, owner, officer, director or employee or agent of, or a
consultant to or give financial or other assistance to, any person or entity considering
engaging in any such activities or so engaged within the Territory; (iii) seek in competition
with the Business within the Territory to procure orders from or do business with any
customer of either Seller or Buyer whether on OWNER’s behalf or on behalf of another; (iv)
hire, solicit, or contact with a view to the engagement or employment of, any person who is
an employee of either Seller as of the date of the Purchase Agreement or of Buyer or any
affiliate of Buyer; or (v) seek to contract with or engage (in such a way as to adversely affect
or interfere with the Business as carried on by either Seller as of the date of the Purchase
Agreement or by Buyer) any person or entity who has been contracted with or engaged to
manufacture, assemble, supply or deliver products, goods, materials or services to either
Seller or Buyer; provided, however, that nothing herein shall prohibit either Seller and
Affiliates from jointly owning, as passive investors, in the aggregate not more than 5% of the
outstanding publicly traded stock of any corporation so engaged. The duration of OWNER’s
and Affiliate’s covenants set forth in this Section 1 shall be extended by a period of time equal
to the number of days, if any, during which such OWNER or any Affiliate is in violation of the
provisions hereof.
(b) From and after the date hereof, neither OWNER nor any Affiliate
shall, directly or indirectly: (i) use or procure the use of any name including the words “Flo
Control” or any derivative or colorable imitation thereof; or (ii) use in furtherance of any of
their business affairs or disclose to any third party any trade secret, client list, supplier list,
financial data, pricing or marketing policy or plan or any other proprietary or confidential
information relating to Buyer, the Business as conducted by either Seller at any time prior to
and as of the date of the Purchase Agreement, any of either Seller’s products, services,
clients or suppliers as of the date of the Purchase Agreement, or any of Buyer's products,
services, clients or suppliers, so long as the same is not publicly known (other than by the act
21. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 21 of 23
of OWNER or any Affiliate). If OWNER or any Affiliate should use or reveal to any other
person or entity any confidential information, this will be considered a continuing violation on
a daily basis for so long a period of time as such confidential information is made use of by
OWNER, such Affiliate or any such other person or entity.
(c) For the purposes of this Agreement, “Territory” means the
United States, and “Affiliate” means: (i) any corporation of which OWNER owns or otherwise
possesses the power to direct the vote, directly or indirectly, of an amount of voting securities
sufficient to elect a majority of the board of directors of such corporation, and (ii) any other
person or entity controlled by OWNER. For the purposes of this definition of “Affiliate,”
“control” means the power to direct the management and policies of a person or entity,
directly or indirectly, whether through the ownership of voting securities, by contract or
otherwise; provided, that any person or entity of which OWNER owns beneficially or of
record, either directly or through one or more intermediaries, more than 20% of the ownership
interests, shall be conclusively presumed to be an “Affiliate.”
(d) OWNER acknowledges and agrees that the covenants contained
in this Section 1 are fair and reasonable, and that damages alone shall not be an adequate
remedy for any breach by OWNER or any Affiliate of the covenants contained in this Section
1 and accordingly expressly agrees that, in addition to any other remedies which Buyer may
have, Buyer shall be entitled to injunctive relief in any court of competent jurisdiction for any
breach or threatened breach of any such covenants by OWNER or any Affiliate. Nothing
contained herein or in the Purchase Agreement shall prevent or delay Buyer from seeking, in
any court of competent jurisdiction, specific performance or other equitable remedies in the
event of any breach or intended breach by OWNER or any Affiliate of any of their obligations
under this Section 1.
(e) Notwithstanding the equitable relief available to Buyer, OWNER,
in the event of a breach of OWNER’s covenants contained in Section 1 hereof, understands
and agrees that the uncertainties and delay inherent in the legal process would result in a
continuing breach for some period of time, and therefore, continuing injury to Buyer until and
unless Buyer can obtain such equitable relief. Therefore, in addition to such equitable relief,
Buyer shall be entitled to monetary damages for any such period of breach until the
termination of such breach, in an amount deemed reasonable to cover all actual and
consequential losses, and all costs and reasonable attorneys' fees incurred by Buyer in
enforcing this Section 1.
(f) If any court shall find either the duration or geographical limit of
any restriction contained in this Section 1 to be unenforceable in accordance with its terms, it
is the intention of the parties that the restrictive covenant set forth herein shall not be
terminated but shall be deemed to be amended to the extent required to render it valid and
22. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 22 of 23
enforceable, such amendment to apply only within the jurisdiction of the court that has made
the adjudication.
2. Arbitration
(a) All disputes arising out of or relating to this Agreement which
cannot be settled by the parties shall promptly be submitted to and determined in arbitration
in Los Angeles, California, by a panel of three arbitrators (unless otherwise agreed to by the
parties), of whom Buyer shall select one, OWNER shall select one and the third shall be
selected within 10 days of the appointment of the second arbitrator by the two previously
selected, pursuant to the rules and regulations then obtaining of the American Arbitration
Association; provided, that (i) nothing herein shall preclude the Buyer from seeking, in any
court of competent jurisdiction, damages, specific performance or other equitable remedies in
the case of any breach or threatened breach by OWNER or any Affiliate of Section 1 hereof
and (ii) if either party shall fail to select an arbitrator within 10 days of receipt of a written
request to do so by the other party containing the name of the arbitrator selected by such
other party, the American Arbitration Association shall select the arbitrator for the party that
failed to do so. The decision of the arbitrator shall be final and binding upon the parties and
judgment upon such decision may be entered in any court of competent jurisdiction.
(b) It is the intent of the parties that the arbitrators be knowledgeable
in the irrigation products industry. Such arbitrators shall be required to apply the contractual
provisions hereof in deciding any matter submitted to them.
3. Costs of Enforcement. If any party hereto incurs any costs or expenses
in connection with any dispute arising under this Agreement, the prevailing party to such
dispute shall be entitled to recover from the non-prevailing party such prevailing party's
reasonable costs and expenses, including, without limitation, reasonable attorneys' fees and
costs incurred in prosecuting or defending such dispute, as the case may be.
4. Notices. All notices hereunder shall be in writing and shall be sufficiently
given if hand delivered, sent by documented overnight delivery service or registered or
certified mail, postage prepaid, return receipt requested or by telegram, telex, fax or telecopy
(confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or to such
other person and/or at such other address as may be furnished in writing by any party hereto
to the other. Any such notice shall be deemed to have been given as of the date received, in
the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in
all other cases.
23. LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
“C” Corporation Asset Sale – Martin Ice Cream and Bross:
Personal Goodwill To Reduce The “Double” Tax
February 19, 2015
Page 23 of 23
To Buyer:
With a copy to:
If to OWNER:
5. Assignment and Benefit. Buyer may assign this Agreement in whole or
in part to any subsidiary of Buyer or to any person, firm or corporation which becomes a
successor in interest (by purchase of its assets or stock, or by merger or otherwise) to Buyer
in the business being acquired by it pursuant to the Purchase Agreement. Subject to the
foregoing, this Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon, the parties hereto and each of their respective permitted
successors and assigns.
6. Entire Agreement and Modification. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters contemplated herein
and supersedes all prior agreements and understandings with respect thereto. Any
amendment, modification, or waiver of this Agreement shall not be effective unless in writing.
Unless expressly provided, the waiver by a party of any breach of any provision of this
Agreement shall not constitute or operate as a waiver of any other breach of such provision
or of any other provision hereof, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof.
7. Governing Law.
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8. Severability.
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9. Counterparts.
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10. Further Assurances. Each of the parties hereto shall execute such
further instruments and take such other actions as the other party shall reasonably request in
order to effectuate the purposes of this Agreement.
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