"Mauibob" <mauibob[at]aol.com> wrote:

- quote -

I'd need a LOT more info for a good answer, but here goes . . . .

First, what does refinancing have to do with one owner
buying out another? If the business refi's a property and
gets cash, the cash belongs to the business, not the owners.
Is the corporation buying out the old stockholder? If so,
you have a treasury stock issue with likely no taxable event
to the corporation and likely a taxable event to the seller.

If the S corp is distributing cash to the stockholders it
MUST do it prorata based on ownership. Then when
stockholder A buys out stockholder B there will be no
taxable event to Stockholder A, but he basis will get
adjusted. There will likely be a taxable event for
stockholder B. Also, the distribution of cash to the
stockholders may or may not be a taxable event depending on
their individual bases in the enterprise.

Refinancing a property and pulling cash out of equity is
NEVER a taxable event. All you've done is trade one asset
(equity in a property) for another asset ($$$$$).

I can't tell what transaction the attorney thinks will get
disallowed based on the limited information provided.
However, if the attorney thinks the deal smells bad I'd give
that some weight just because most attorneys live and breath
the theory of Form over Substance. So if it looks BAD to
him I'd have to say it may be bad.

Be very careful whenever you sell anything of value for no
consideration, the attorney is right about that. If you're
selling for no consideration, can I please have the 50% of
the old owner? (I said please!)

I would suggest you meet with a qualified tax professional
to go over the details of this proposed transaction.

Gene E. Utterback, EA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

My question is on a refi on a commercial property. S-Corp
owner. Under normal circumstances - is this considered a
taxable event with the S-corp owners having tax
consequences? Personally, I don't think so as the funds are
the s-corp's to disburse or invest.

Now add the fact that the s-corp will go from 2 shareholders
to 1 very shorty. Partner #2 is buying out partner #1
basically with the proceeds from the refi.

The advising attorney says that he is "pretty sure" that the
IRS would disallow this transaction (if ever audited) and he
advised to structure it as a sale of stock where just the
capital gains tax will apply. I like the refi, distribute
and then sell the stock option for no tax. But he says sell
the stock, refi, and pay the tax option.

Any ideas, advice ? Thanks in advance.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->