Effects of liquidation on the liquidating corporation dating mr huggles
Corporation must be a "small business corporation", meaning aggregate amount of money and other property received by corporation , as a contribution to capital, does not exceed million.3. Does not need to be formally elected, but usually a provision is provided in the Organizational Minutes or Bylaws. S Corporation is a small business corporation which does not have (i) more than 100 shareholders, (ii) a shareholder who is not an individual (although some special types of trusts may qualify), (iii) a nonresident alien as a shareholder or (iv) more than one class of stock.3. This could shorten the period of time a creditor may have to seek remedies against a corporate defendant, if the applicable statute of limitations for such claim exceeds three years or if the cause giving rise to such action is discovered later and no proceeding is filed within such three year period.
Loss from sale or exchange of §1244 Stock will be treated as ordinary loss (as opposed to capital loss) to the extent of ,000.00 per single taxpayer or 0,000.00 for husband and wife filing a joint return.2. Such corporation, during the period of its five most recent taxable years ended before the date of loss, derived more than 50% of its aggregate gross income from sources other than passive income sources.5. Good mechanism for avoiding taxation during operating years of corporation.2. 7.12 provide that all claims against a dissolved corporation expire after three years, if such claims are not brought within such time period.
Among the limited actions that the shareholders may vote on are (i) the election of directors (TBOC §21.405 or TBCA Art. 2.22-1) - if represent majority interest, deny shareholders' preemptive rights. Restriction on transferability of stock interest through right of first refusal or through required consent.2. Basis limitation on pass through of losses (IRC §1366(d)) - the aggregate amount of losses and deduction shall not exceed the shareholder's basis in its stock or any indebtedness of the S Corporation to the shareholder. The shareholders had received the funds from an affiliated entity that had borrowed the funds from a third party and the shareholders were not primarily obligated to repay the borrowed amount. 34884 (6/12/12), which would allow an increase in shareholder's basis if the indebtedness of the S corporation to the shareholder is bona fide.5. App.-Houston [14th Dist.] 1986, writ ref'd n.r.e.), provided credence that the single business enterprise theory could be used to pierce the corporate veil under Texas law. Number of shareholders irrelevant (Tax Reform Act 1984). Corporation being a mere holding or investment company shall be prima facie evidence of an income tax avoidance motive. If notification described below has not been sent, on the Secretary, orb.
Shareholders - The shareholders of a corporation (the owners) have very limited powers under the general structure of the TBOC and/or the Texas Business Corporations Act ("TBCA"). If do not meet safe harbor debt requirements, such debt may be reclassified as equity in the form of a second class of stock (liquidation preference) resulting in the disqualification of the corporation as an S Corporation.4. Memo 2009-76 (4/6/09), holding that shareholders received no basis from direct loans from the shareholders to their S Corporation because, under the fact pattern, the shareholders made no true economic outlay even though there was a direct indebtedness to the shareholders. seq.) because S Corporations are deemed to have distributed all earnings.3. The fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence, shall prove to the contrary.2. In any proceeding before the Tax Court involving a notice of deficiency based in whole or in part on the allegation that all or any part of the earnings and profits have been permitted to accumulate beyond the reasonable needs of the business, the burden of proof with respect to such allegation shall be:a.
Traditional Factors - The traditional factors for the determination of whether to incorporate or not have generally been centered around variations of the following concepts: (i) liability exposure, (ii) capital formation, (iii) management and (iv) continuity of life. Professions excluded: physicians, surgeons, other medical doctors, engineers, architects, pubic surveyors, cosmetologists, dieticians, mortgage brokers, pharmacists, private security investigators, securities brokers/dealers, real estate agents/brokers, interior designers, court reporters, patent agents, educational diagnosticians, registered lobbyists, social workers and enrolled agents Certified Public Accountants: A public accounting firm that is to have owners who are not certified public accountants would form a business corporation. Foreign Corporations - A foreign corporation which is transacting or has transacted business in Texas without a filed Application for Registration (post-TBOC) or a filed Certificate of Authority (pre-TBOC) may not maintain any action or proceeding in any court in Texas on any cause of action arising out of its transaction of business in Texas, until such corporation shall have filed an Application for Registration. A corporation that has transacted business in Texas without an Application for Registration (post-TBOC) or a Certificate of Authority (pre-TBOC) shall pay all taxes and other penalties that would have been owed if properly registered and all penalties and interest on such amounts. 4.02 - again, directors must adopt a resolution first); (iii) reduction of stated capital without amendment of Certificate of Formation or Articles of Incorporation and without cancellation of shares (TBOC §21.253 or TBCA Art. If Certificate of Formation (post-TBOC) or Articles of Incorporation (pre-TBOC) are silent, preemptive rights are denied.b. If represent minority interest, provide for cumulative voting in the Certificate of Formation (post-TBOC) or in the Articles of Incorporation (pre-TBOC). High quorum or voting requirements in the Certificate of Formation (post-TBOC) or the Articles of Incorporation (pre-TBOC).d. Under the 1986 Tax Reform Act, S Corporations will pay tax on any gain that arose prior to its conversion to S status that it recognizes through a sale or distribution within ten (10) years after the date the S election was effected. 111-5, §1251(a).] Special rules provide that the S Corporation will not pay tax to the extent it can show the appreciation occurred after its change to S status; thus, appraisal of assets at time of conversion may be advisable. 14, 2008), the Texas Supreme Court clarified that "the single business enterprise theory" is not a means to impose one corporation's liabilities on another and rejected the theory as inconsistent with veil piercing principles under Texas law. Factors to be considered in determining whether the constituent corporations have not been maintained as separate entities include but are not limited to the following: common employees; common offices; centralized accounting; payment of wages by one corporation to another corporation's employees; common business name; services rendered by the employees of one corporation on behalf of another corporation; undocumented transfers of funds between corporations; and unclear allocation of profits and losses between corporations. Notification by Secretary - Before mailing the notice of deficiency, the Secretary may send by certified mail or registered mail a notification informing the taxpayer that the proposed notice of deficiency includes an amount with respect to the accumulated earnings tax imposed by §531.3. A deduction for charitable contributions in full;c. Generally, a deduction is allowed in full for capital losses;e. IRC §333 - One month liquidation repealed by 1986 Tax Reform Act. IRC §336 - Under Tax Reform Act of 1986, tax rules were dramatically changed with respect to gain or loss recognized by liquidating corporation or appreciated property distributed in complete liquidation. Certificate of Termination (post-TBOC) or Articles of Dissolution (pre-TBOC) - to be filed with the Secretary of State. Directors - The business and affairs of a corporation shall be managed by the Board of Directors. May even allow management power provisions by shareholders often contained in Shareholders' Agreement if provided in Articles of Incorporation.4. Statement of Operation - required to be filed if business of close corporation conducted pursuant to Shareholders' Agreement. Any other rule would seriously compromise what we have called a "bedrock principle of corporate law" - that a legitimate purpose for forming a corporation is to limit individual liability for the corporation's obligations'... However, once the taxpayer has introduced any credible and competent evidence to rebut the Commissioner's actions, the presumption of correctness will no longer prevail, and the court's determination must then be made on the basis of the preponderance of the evidence. In fact, at least one court has gone so far as to state that if compensation is otherwise reasonable, whether dividends were paid is immaterial. A deduction for reasonable compensation is not limited to amounts paid as compensation for services rendered in current years. However, watch out for payroll tax issues as the IRS may assert that compensation to shareholder employees may be too low, resulting in a recharacterization of shareholder distributions as wages and, accordingly, tax assessments for payroll taxes (FICA, Medicare, FUTA), penalties and interest. To provide for the retirement of bona fide indebtedness created in connection with the trade or business;d. Directors - The business of a corporation shall be managed by a Board of Directors. Pre-TBOC Corporations/Close Corporation - TBCA Part 12a. Shareholders' Agreement - provides for broad range of matters to be governed thereunder, including management by the shareholders. Accordingly, we hold that the single business enterprise liability theory set out in will not support the imposition of one corporation's obligations on another.2. Accounts receivable of a cash-basis transferor - although unclear, reasonable basis exists for treating accounts receivable as taxable to corporation rather than transferor.2. 84-111 dictates tax consequences of three methods of incorporating an existing partnership. Texas Franchise Tax Effective generally for tax years commencing with 2007, the existing Texas franchise tax was replaced with a new tax (referred to as the "Texas Margins Tax") that applies to most business entities that have statutory liability protection, including, without limitation, corporations (C or S), limited liability companies and limited partnerships. Rule 504 - Small Sales (not exceeding million) Subject to State Regulation5. Number of non-accredited purchasers may not exceed 35.6. Rule 109.13 - Purchase of securities by investors who are not well informed and sophisticated constitutes "public solicitation" under Texas law.2. 1302-2.02 requires that whenever any unincorporated business becomes incorporated without a change of its firm name, such firm shall give notice of dissolution and publish in a newspaper (in the county in which the firm has its principal business office) for at least four consecutive weeks a notice of its intention to become incorporated. Statutory Rules - IRC §162(a) provides there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred in carrying on any trade of business, including "(1) a reasonable allowance for salaries or other compensation or for personal services actually rendered."B. Payments made by an employer to an employee may be deductible as reasonable compensation for current and past services rendered. An important consideration in non-personal service corporation situations is whether, after the compensation deduction, the corporation has sufficient retained earnings to represent a reasonable return on its capital stock. , IRM 18.104.22.168.2.2 which cautions IRS examiners to "[B]e aware of inadequate salaries paid to officer/shareholders who receive substantial nontaxable distributions. To provide necessary working capital for the business, such as, for procurement of inventories;e. "Taxable margin" for this purpose is generally equal to total revenue of the entity, less deductions for either (1) cost of goods sold or (2) compensation, including benefits. Purchasers limited to 35 non-accredited investors and an unlimited number of accredited investors.b. Perhaps a relatively recent case can be instructive in this area: Cir. The taxpayer in this case, an experienced CPA working full time for his S corporation firm, reported (i) ,000 as "W-2" compensation income and 3,651 as Schedule E income for tax year 2002 and (ii) ,000 as "W-2" compensation income and 5,470 as Schedule E income for tax year 2003. To provide for payment of reasonably anticipated product liability losses.3. §1.537-2(c) provides that the following are signs of possible unreasonable accumulations:a. Loans to others having no reasonable relationship to the business;c. Investment in properties or securities unrelated to the business; ore. Podiatrists, dentists, chiropractors, optometrists, psychologists, licensed professional counselors, licensed family therapists, licensed marriage therapists and veterinarians may form either a professional corporation or a professional association.2. Limited Liability Partnerships - TBOC §§152.801 - 152.913PART II. Assumed Names - Any corporation which regularly conducts business under an assumed name shall file an Assumed Name Certificate in the office of the Secretary of State and in the office of (i) the county clerk of the county in which such corporation's registered office is located and (ii) the county in which its principal office is located if different from the county where the registered office is located. 6.02 - unilateral written consent of all shareholders or TBOC §21.503(3) or TBCA Art. Voting Trusts and Voting Agreements - Any number of shareholders may create a voting trust or enter into a voting agreement by which they may vote their shares as a unit. For corporations governed under the TBOC, this can be effected through a TBOC §21.101 shareholders agreement that can delegate management powers to the shareholders.3. However, be careful of IRC §357(c), which provides that a shareholder will recognize income to the extent liabilities exceed basis on property contributed to a corporation. Retracted IRC §385 Regulations provided for 3:1 insider "debt to equity" ratio and 10:1 outsider "debt to equity" ratios.3. Use of Multiple Corporations and Election to File Consolidated Return1. There must also be evidence of abuse, or as we said in as shorthand references for the kinds of abuse, specifically identified, that the corporate structure should not shield - fraud, evasion of existing obligations, circumvention of statutes, monopolization, criminal conduct, and the like. 27-1/2 percent of the accumulated taxable income not in excess of 0,000, plusb. AET imposed on every corporation (other than those described below) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being paid out as dividends or otherwise distributed. To provide for bona fide expansion of business or replacement of plant;b. 2.37 provides for regular and special meetings of the Board of Directors. The statute does not provide for protection against liabilities under piercing the corporate veil theories such as alter ego, actual or constructive fraud, sham to perpetuate a fraud and similar theories.
Professional Associations - TBOC Chapters 301 and 302 - physicians and surgeons B. 6.03 - less than unanimous vote of shareholders and directors must adopt a resolution first).2. Officers - Officers manage the corporation in accordance with directives established under the Bylaws or by the Board of Directors. For corporations still governed under the TBCA, voting trusts and voting agreements presumably only allow control of voting matters within the domain of the shareholders, not voting on management powers within the domain of the directors. Pre-TBOC Corporations/Limitation of Directors and Officers Powers in Articles of Incorporation (TBCA Art. B.) - Provides possibility of limiting powers of directors and officers within the Articles of Incorporation, with presumable result of increasing powers of shareholders. Shareholder Liability - no shareholder liability due to lack of corporate formalities. Term of purported loan document and comparison of payment and interest provisions compared to commercial norms are important factors. Protection of assets in separate corporate entities. Such abuse is necessary before disregarding the existence of a corporation as a separate entity. The matter of reasonable compensation is a question to be resolved on the basis of an examination of all the particular facts and circumstances of each individual case. The determination of what constitutes reasonable compensation for personal services actually rendered is not a matter of exact mathematical or other science, but is, rather, a matter of individual judgment. The courts are reluctant to substitute their own judgment for that of the employer-taxpayer's management, whether such judgment be in the form of a corporate resolution authorized by the corporation's board of directors or whether, in the case of closely held corporations where the officer-employees involved are also the board members, in the form of a year-end decision made during informal meetings of the officers involved. The Commissioner's proposed disallowance of any ordinary and necessary expense deduction set out in a determination letter carried the presumption of correctness in a litigated case. What may be reasonable compensation, and therefore deductible as an ordinary and necessary expense, may vary from year-to-year in the same corporation, or as between different corporations engaged in the same business, in the same location, and practically under the same management; it being in the end controlled by the human element involved. When the evidence shows that the employer-taxpayer's success is primarily attributable to the personal efforts of the officer-employee in question, it is difficult to support a finding that compensation payments to that officer are unreasonable. The relative weight of the dividend history of the taxpayer-corporation is small as compared to the importance of the value of the services performed by the employee in question. S Corporation Election is good tax planning device to avoid IRS challenges to the deductibility of compensation to shareholder employees. 38-1/2 percent of the accumulated taxable income in excess of $100,000. To acquire a business enterprise through purchasing stock or assets;c. states that "an annual meeting of the shareholders shall be held at such time as may be stated in or fixed in accordance with the bylaws."B. TBOC §21.223(a)(3) provides the same rules for corporations governed by the TBOC.