Tax Questions For Discussion: Please Respond

By Herman Spence

Please provide comments about the issues below to Herman Spence at  I will summarize the responses and post them on the Tax Section blog.  I will not mention any individual’s response and will not provide the names of responders.

  1.       North Carolina Stamp Taxes
  1.       Background. GS § 105-228.29 provides the stamp tax does not apply if no consideration in property or money is paid by the transferee to the transferor.  In an Attorney General’s opinion issued in 1973, a husband and wife were the sole shareholders of the corporation to which they conveyed a tract of land without consideration.  The Attorney General determined stamp taxes were not due but emphasized there would be  a contrary result if shares of stock were issued in consideration of the transfer of the property.
  2.       Transfer of real estate to an LLC upon the formation of the LLC.  To avoid the issuance of an LLC interest upon the contribution of property and to avoid the implication of the 1973 Attorney General’s opinion, do you first organize the LLC and issue LLC interests and later separately contribute property to the LLC without consideration?
  3.        Conveyance of property to LLC in anticipation of sale.  Is it reasonable to take the position no stamp taxes are due if property is transferred to a newly formed LLC shortly before the sale of the property, and the transaction is restructured as a sale of the LLC interests?  If it is unreasonable to convey the property to an LLC immediately before the sale of the LLC interests, is it reasonable to contribute the property to the LLC when the sale of the property is expected but there is not yet a sales contract?

  1.        Federal Income Tax Audits
  1.        Frequency.  Are you seeing less IRS income tax audits of small and mid-sized businesses?
  2.        Appeals without in-person conferences.  Are you having difficulty arranging in-person meetings with IRS appeals officers?  Is the lack of in-person appeals conferences a significant hindrance to fair resolution of cases?
  1.       North Carolina Income Tax Audits
     Are North Carolina income tax audits rare except following federal audits?
  2.       Choice of Entity
  1.       Qualified small business stock.  In situations where partnership or subchapter S status is feasible, how often are entities being structured as C corporations to take advantage of the potential 100% exclusion for qualified small business stock?
  2.        Use of S corporations to minimize self-employment and FICA taxes.  In situations where partnership status is feasible, how frequently are businesses structured as S corporations to attempt to minimize self-employment and FICA taxes by paying only a reasonable salary to the shareholder/employee and dividending the remaining profits without being subject to FICA or self-employment taxes?
  1.        Partnership Allocations and Distributions
  1.        Liquidating distributions not based on capital accounts.  Is it most common for liquidating distributions to be based on the normal distribution provisions rather than capital accounts?
  2.       Allocations based on target capital accounts.  Are allocations of income and loss usually based on target capital accounts rather than traditional step-by-step allocations?
  1.        New Partnership Audit Rules
  1.        Amendment of existing agreements.  Will you recommend existing agreements be amended to address the new partnership audit rules?
  2.        Electing out of the new rules.  Do you expect most partnerships that are able to elect out of the new rules to do so?  Will electing out generally be left to the discretion of the general partner, manager, or other controlling partner, or will it be required by the partnership or LLC agreement?
  3.        Other elections and decisions.  Will agreements usually provide the general partner, manager, or other controlling member (as the partnership representative) broad discretion in making elections and handling audits and settlements?  Will the partnership representative usually be required to provide minority members with notice and information of audits and appeals?  Will minority members usually have consent rights as to push-out elections, settlements, and the like?  Will agreements generally contain detailed provisions protecting the partnership representative from claims of breach of fiduciary duties?

Please provide me with comments about some or all of the above issues.  The summary of responses posted on the blog will not identify any responders.  Please send me additional issues you would like to submit for the group’s comments.