<negrom63[at]yahoo.com> wrote:

- quote -

Even with the minimum facts as posted, this is a very
unusual arrangement. In general, a outsider's minority
interest in a closely-held corporation is usually viewed as
not worth much at all. So it may difficult to arrive at an
agreeable % of the stock which fairly compensates the
outsider for the services, and the higher the %, more it
dilutes your interest and that of any other S/H.

But assuming that's not a problem, where it's an S-Corp,
that means a % of future profits will be taxed to this S/H,
which means the S/H should want matching cash distributions,
and in perpetuity as long as there are profits. Is that
your intent here? The corollary to this is that the
controlling S/H's can set salaries so that this outsider
sees little or nothing in entitlement to annual
distributions. Is he/she amenable to this risk?

Reg,
Fred F.

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negrom63[at]yahoo.com wrote:

- quote -

I'd guess that incentive stock options would be the best way
to go.

- quote -

Yup.

Stu

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What is the most tax-efficient way to tranfer stock in a
closely held S-corporation to a non-related consultant of
the company in order to minimize the overall cost to the
consultant and the cumulative tax burden?

The sole owner of the company would like to gift his shares
to the consultant, but I suspect that the IRS would consider
that consulting pay, regardless of the intent.

If the corporation issues shares to the consultant at no
cost, then the consultant must report the fair market value
of the shares as income. Can the corporation then deduct the
fair market value as an expense? If so, on what line? The
company can then compensate the consultant for his/her
additional tax burden, and the net tax burden becomes: Fair
market value of shares x (Consultant's tax rate - company
tax rate) PLUS Tax-adjustment payment x (Consultant's tax
rate)

Is that all legal and correct? Is there a more efficient way
to accomplish this (at essentially no cost to the consultant
and minimal cost to the company)?

Thank you all!
Nick

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