Business Law

Tax Exempt Organization

Restructuring

Entity Selections – Formations

Dissolutions

Business Transactions

Proper Structure and Procedures

The Internal Revenue Code is one of the most complex areas of law in existence and tax-exempt organizations are arguably the most complex area of the Internal Revenue Code. There are many areas of the tax code that can cause tax-exempt organizations to get into trouble and could cause large fines for those within the organization.

You do not want to find yourself with a 200% fine for private inurement when it is easily avoidable by establishing proper policies and operations to ensure compliance with the rules of the Internal Revenue Code.

There are several different types of tax-exempt organizations, the most common are established under section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) will cover public charities and private foundations. The Internal Revenue Code and the IRS have established strict rules for these types of organizations in order to obtain and maintain their tax-exempt status.

These types of organization may be structured in four different ways:

Unincorporated Association
Charitable Trust
Nonprofit Corporation (Most common)
LLC

How We Help You

We are here to help you navigate the Internal Revenue Code to help ensure compliance. Starting with the proper type of organization (should your company be a public charity or a private foundation).

There are different rules for each type of organization, and there are two types of private foundations; private operating foundations and private non operating foundations, they are treated differently under the code. We will do everything we can to ensure your compliance with the code through our vast knowledge of exempt organizations and their treatment by the IRS.

There are several other types of tax-exempt organizations that are allowed under the Internal Revenue Code, including:

Social Welfare Organizations
Labor Organizations
Trade Associations
Social Clubs
Fraternal Benefit Organizations
Nonprofit Hospital Co-ops
Political Organizations
Homeowners Associations

This is not an exhaustive list, but it is a list of the most common types of tax-exempt organizations. All of these organizations are governed by a different section of the code and have different rules that must be followed to comply. We have studied these code sections and the IRS’s interpretation of the code section in order to give you the best advice possible.

Growing Your Business

If there is anything that can be counted on in this world it is uncertainty of the future. Because of this there are times when the structure of a business should be changed. There are several reasons to restructure a business entity, from new investors buying in, to investors leaving, to tax blockers.

There are times that a business will grow faster than any of the original investors thought and the structure used in the formation of the company is no longer the best way to operate. Of course, this is a good problem to have, but it is still a problem that will need to be addressed.

There are other times that a company is not as successful as originally anticipated and the owners need to bring in new investors to infuse capital, this is another time that restructuring may be necessary for several reasons.

The new investors may want a certain structure, or the new investors may not be eligible to invest in the current structure, an example would be a corporation buying into an S-Corporation. A C-Corporation is not eligible to be a shareholder in an S-Corporation and would cause the taxation of the company to change drastically, in this situation restructuring to a C-Corporation or an LLC or partnership might be the best course of action.

Professional Competent Estate Tax Advice

Currently, the gift, estate, and generation-skipping transfer (GST) tax exemption are high and few people have to worry about the consequences of these taxes. However, the current exemptions are scheduled to sunset in 2025 and revert back to half their current level.

The tax code is a moving target that congress can change on a whim. Due to the ever-changing tax code and unpredictable changes in our lives, it is advisable to have plans in place that will account for possible changes in the future.

Obviously, even as experts on the tax code, we cannot predict every possible change in the future. However, we keep a constant eye on congressional proceeding and keep in contact with many different players in this area that will allow us some predictability of possible changes.

Many people look at the gift, estate, and GST tax exemption (which is currently over $10 mill. Per person) and decide they do not need any tax advice on their estate planning because their net worth is below that number. While having a net worth below the exemption makes your tax planning different, there is still some planning that may be beneficial for many reasons.

One is if you or your children live in a state that has an estate tax. Through proper planning, we can help you significantly reduce or eliminate your estate tax liability. Another reason is what was discussed above, the code is constantly changing and if we use some simple techniques now, we can combat those changes in the future that may make your estate taxable.

Leave A Legacy To Your Favorite Charitable Organization

Donating to charities is something all of us likely take part in at some level, and many of us wish we could do more for the charities we believe in. Although we generally advise that a tax deduction should not be your main motivation for charitable giving, it is one of the benefits of such gifts.

Charitable giving can have many benefits, both for tax savings and as part of your estate plan. If you are fortunate enough to have the means to make some larger charitable donations either outright, in trust, or as a part of your estate plan we will help you to get the best tax treatment possible.

We will help you identify charities to give to, making sure you are able to take full advantage of your donations. We can help you decide how to structure your donations as well and which assets should be donated.

There are many different ways to give to charity, there are donations of property, cash, securities, and any of these donations may be appropriate and offer large tax deductions depending on your circumstances. We are experts in both the tax code and asset transfers, which allows us to come up with creative transactions that will allow for maximum benefits.

Set Your Business Up Correctly From The Start

When you are thinking about starting a business there are a multitude of factors to look at when making the determination of what type of entities you will use. There are several entities that will provide the owners with a liability shield and some that will not.

Liability is an important factor in business, it is generally going to be our goal to make sure your personal assets are protected as much as possible from any liability of your business entity.

There are several ways to protect assets, from insurance, to corporate shields, to limited interests in companies. All these protections can offer you some piece of mind that if an employee or agent makes a mistake your personal assets will be protected.

Another factor to look at in the formation stage is the operational requirements of each type of entity, some entities require more formalities than others. There are four basic types of entities that are generally used, a corporation, an s-corporation, an LLC and there are several different types of partnerships.

There is also a sole proprietorship, which we generally do not suggest simply because there is no liability shield. We will work with you and get an understanding of the type of business you are starting, the people involved, and all other relevant factors to determine the best fit for you and help you form the right business entity for you.

Shareholder Agreements/Partnership Agreements/LLC Agreements

Arguably the most important document in any business entity is the governing documents which can take many forms, depending on the type of business entity. Whether it takes the form of a partnership agreement, LLC agreement, a shareholder agreement, or a combination of articles of incorporation and bylaws, these documents will outline the operations of the business.

It is much easier to decide different procedures at the beginning of the business as opposed to figuring it out later. These agreements will govern procedures for bringing in additional investors, dispute resolution for the investors, meeting and voting procedures and much more.

By laying out all of these procedures early in the process it will help to make sure the investors are in agreement and will hopefully stop major disputes down the road.

Business Financing

Stock Options

Business Law In Conclusion

At the beginning of any business venture, there must be a plan for financing the operations. There are two main options when financing a business venture, they are generally known as equity financing and debt financing.

Equity financing, is a more direct form of financing, for example investing cash directly into the company, but there are many other forms of equity financing that may be options and could cause different consequences.

Assets other than cash are often used to finance a business, like equipment or inventory, depending on the type of investment, there could be different tax and liability consequences.

Debt financing is exactly what it sounds like, the business entity will borrow assets in order to finance the startup or operation of the entity. Debt financing can come in many forms, such as a small business loan, a loan from family, or a loan from the investors themselves.

Debt financing can be a much riskier way of financing a business, not just because of the liability of debt, but also because if proper procedures are not followed, the IRS may find the debt financing to actually be equity financing which could have major tax consequences to both the business entity and the investors.

Debt financing can also offer tax savings to the investors. We are experts in financing of businesses and will do everything we can to find you the best type of financing for your situation and the goals of the investors.

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Protecting Your Investments

There are many reasons to dissolve a business entity and there are different procedures to follow depending on the type of entity and reason for the dissolution. We will help you sort through the tax consequences, liabilities, assets and any other factors that may affect the dissolution of your business.

The general goal in a dissolution is to ensure the transaction is final and see there are no further liabilities to the business entity or the owners. Often the dissolution of a business entity is looked at as a burden to the owners as they are looking forward to their next venture. We will work to navigate the dissolution process and limit any liability to the owners while looking for tax advantages along the way.

The unintended consequences of a dissolution can cost a business and its owners time and money if the process is not carried out correctly. Even after a business is dissolved, the IRS may still audit the business for years and could hold the owners liable for any tax debts. If a proper notice is not given to creditors, the business and owners may be liable for debt into the future.

There can be strategic reasons for a dissolution as well. Businesses may be dissolved as part of a merger, acquisition, corporate reorganization, retirement and many other reasons. Depending on the amount of assets of individual investors, the operations of a company and the practices of the owners, there are times that at the formation stage we would suggest multiple entities in order to protect the assets of the parties involved.

One of the reasons is if a portion of these operations fails, there is a way to dissolve a single entity while preserving the assets of the other entities. No matter the reason for a dissolution we can help you take care of it and will work to make the process as easy as possible for you.

Business Transactions

Much of the smaller tax burdens such as office supplies and inventory can be addressed in the formation stage. When we think about business transactions we are talking about the larger transactions.

Buildings, land and equipment can offer huge tax savings whether up front or over time through depreciation. When looking at these types of assets it is a good idea to look at the tax consequences up front so there are no surprises down the road.

By looking at a transaction not only through a cost benefit analysis, but also through a lens of the tax burdens or savings caused by the transaction we will be able to help you project future profit and loss as well as your future tax burdens.

By projecting future tax burdens, we will be able to assist you in determining the amount of funds that should be set aside for taxes, so you are able to pay when the time comes. There are many factors to look at when making a large purchase; should you purchase with cash or financing? Should you purchase new equipment or used equipment? Are the upfront costs going to be enough of a benefit in the future to justify the purchase?

By making the right decisions, you will be able to run a more efficient company from an operations perspective and a tax perspective which should help you keep more money in the business, which can be used to expand the business, increase the value of your company and give better compensation to your employees.

Mergers & Acquisitions

Buying and selling a business can get very complicated very quickly and there are three questions that will have to be answered in every transaction. The first is whether it will be a taxable transaction or a tax-free transaction. The second is whether the purchase will be of assets or the business interest itself (i.e. stock).

The third question is whether payment will be upfront or at some future time. Before any transaction for the purchase and sale of a business can take place, these three questions must be answered. Sometimes it will be straightforward, and the parties will agree to the transaction and all that needs to be done is signing of a contract and transfer of the business or assets.

Many times, this will be no problem and everything will be fine, generally in a small transaction for cash. However, most purchases and sales of companies are not going to be that simple and the tax burdens can get steep if there is no tax professional involved in the transaction.

The idea for many of the people is to complete the transaction and pay as little as possible (or get paid as much as possible), then figure out the taxes. However, if the tax consequences are figured out ahead of the transaction there will likely be many areas for tax savings that will allow both sides to keep more money in their own pockets in the end.

Taxable vs. Tax Free

Stocks vs. Assets

Money Now vs. Money Later

Whenever you start looking at a business transaction and someone hears “tax-free” they want to hear more about it. The truth is, many business purchases are going to be taxable because structuring a tax-free deal is either too risky to the seller or it is simply too difficult to structure in a way to get everyone involved to agree.

The good news is that there are ways to make a tax-free transaction work. One way involves proper formation with the company and the issuance of qualified stock. Another is through a corporate reorganization (not the same thing as a reorganization under bankruptcy law). There are several different ways to use corporate reorganization statutes to effectuate a tax-free sale of a business.

This is a very complex area of law and the transaction, will of course, also be very complex. If you are entering into a corporate reorganization a tax professional will help to properly structure the transaction. You do not want to find yourself in the situation of getting a tax bill you are unable to pay because the transaction was not structured correctly.