The May/June 2006 issue of this publication, The Business Owner Journal, page 9, contained an article titled “Selling a C-Corp? Try These Tax Strategies.” Item 4 of the article described a tax reduction technique called “Stock-buying Middleman.” We cautioned against the transaction but have since learned that this type of transaction is “listed” by the IRS. To quote from IRS Notice 2001-16:
“The Service may challenge certain transactions in which the assets of a corporation are sold following the purported sale of the corporation’s stock to an intermediary. Such transactions are designated as ‘listed transactions’ for purposes of sections 1.6011-4T(b)(2) and 301.6111-2T of the regulations.”
In short, the IRS warns taxpayers that this type of transaction does not conform to tax law, and parties involved in it may be subject to penalties or other disciplinary action.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
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