As corporate tax attorneys we counsel our business clients in Los Angeles County and throughout Southern California on compliance, risk-analysis, tax exposure, and federal and state tax planning to maximize earnings and growth. Often the State of California Revenue & Tax Code conforms to the Internal Revenue Code, but there are instances where the rules diverge and clients are well served to know how to navigate these rules to minimize their tax obligations.Corporate Tax Compliance
Advocate Solutions represents many family-owed businesses that operate as S corporations. These businesses often require counseling on tax compliance issues to ensure the corporate losses flow through to their owners and that certain distributions do not inadvertently terminate the S corporation election.
In order for a shareholder to claim a loss, they must have adequate stock and/or debt basis. If the S corporation makes a non-dividend distribution to its shareholder, the shareholder must have adequate stock basis for the distribution to be characterized as non-taxable. Similarly, when shareholders of an S corporation dispose of their corporate stock, they need to establish their basis to determine gain or loss on the disposition.
The IRS and FTB routinely audit and examine S corporations for issues involving shareholder’s flow-through losses as well as the payment of adequate shareholder compensation. Advocate Solutions regularly counsels small business clients on compliance issues and serves as tax counsel when those business owners engage in acquisition or disposition transactions.Corporate Tax Planning
Tax planning plays a significant role in corporate transactions. At Advocate Solutions we design and implement innovative tax planning strategies for individuals and businesses to minimize tax exposure. We work with our clients’ corporate attorneys, investment bankers and accountants to structure acquisitions and sales in a tax efficient manner.
Advocate Solutions provides strong technical expertise and planning skills in the area of corporate tax planning, including those issues affecting pass-through entities such as S corporations, partnerships and limited liability companies taxed as partnerships. We negotiate and document the purchase and sale of businesses, corporation split-ups and divestitures. We have represented a variety of businesses in sophisticated sales (distressed sales in and out of bankruptcy), spin-offs, and mergers and acquisitions. We utilize innovative strategies to minimize taxes when a business is acquired or sold and help facilitate the transition or liquidation of family-owned businesses upon the owner’s retirement. Most of our clients are closely-held businesses who have benefited from our tax advice in transitioning ownership to the younger family members.
The scope of our service ranges from the infancy stages of drafting letters of intent to creating the tax-efficient structures for a proposed transaction, to documentation and negotiation of the investment, to execution and post transaction integration issues.
For smaller size deals, our firm will draft stand-alone buy-sell agreements incorporating the due diligence and analysis for optimum tax benefits from a sale or disposition of a business.
We offer these services in Los Angeles County and throughout the States of California and New York.
Contact a Corporate Tax Attorney
For more information or to schedule a consultation with a lawyer at Advocate Solutions, Inc., call 310.734.2677 or complete the contact us form on this site.Pending Tax Reform Impact on Business Acquisition and Dispositions
Overview of Trump Administration’s Proposed Tax Law Changes
Both Congress and the Trump Administration have expressed their desire to implement tax reform by August 2017, however this timeline has been questioned by Senate Republican leadership and will likely extend through year-end. Some of the tax reform proposals that have been presented and their implications on businesses and their owners are outlined below:
Changes to Individual Tax Rates and Deductions – The tax reform proposals include reducing the number of individual income tax brackets to only three (12%, 25% and 33%), which would lower the maximum individual tax rate to 33%. There have also been proposals to eliminate the alternative minimum tax and to place a cap on the use of itemized deductions for certain high-income taxpayers. The Trump administration has announced that the mortgage interest deduction is not expected to be repealed.
Business Tax Rate Reduction – There have been proposals to lower the corporate tax rate to 15%-20% from the existing 35% tax rate. In order to offset the revenue loss from this rate reduction, business interest deduction would be eliminated. Although the loss of interest deductions is expected to result in greater tax revenue to offset the lost revenue from the corporate tax rate reduction, businesses can be expected to utilize equity rather than debt financing in transactions. There have also been proposals to allow immediate expensing of investments in business assets in the year of acquisition rather than depreciating or amortizing of the asset over time. This proposal is expected to encourage businesses to invest in more equipment and machinery.
Changes to Capital Gains Rates – The Trump administration also proposes to lower the current capital gains tax rates for businesses to more effectively compete globally on sale or acquisition of assets.
Increase in Tax Rates for Partnership Carried Interest – President Trump has expressed his desire as part of comprehensive tax reform to tax “carried interest” at higher ordinary tax rates rather than at the lower capital gains rates. Carried interest is promotional interest associated with many partnership arrangements.
Tax on Imports of Foreign Goods – President Trump has proposed a “border adjustment tax” which would impose a tax on goods imported from overseas, but this proposal has been met with opposition from companies within the retail industry that rely upon the importation of products from other foreign countries.
Foreign Earnings for U.S. Multinational Corporations – President Trump has expressed desire to encourage U.S. multinational corporations to repatriate earnings and profits back to the United States. There are proposals to impose a one-time tax payable over several years to encourage the repatriation of these earnings back to the U.S.
Repeal of the 3.8% Tax on Net Investment Income – As part of the proposal to repeal the Affordable Care Act, the Republicans propose to eliminate the 3.8% Net Investment Income Tax.
How Will Tax Reform Impact the Documentation and Structuring of Business Acquisition or Disposition?
Changes to Acquisition Documents. Given the uncertainty as to the timing and implementation of proposed tax reform changes, the seller of a business will want to disclaim any representation or warranty as to the potential future tax law changes or the impact of such taxes on the transaction. The parties may want to negotiate whether to require the future tax law changes a condition of closing on the transaction.
Potential Tax Benefits for Purchasers. The proposal for expensing of assets would encourage prospective buyers to structure an asset acquisition either directly or via a Section 338 election.
Equity Rather Than Debt Investments. The proposal to eliminate business interest deductions would encourage more equity investments and encourage businesses to raise capital rather than leveraging transactions through debt finance.