Short Note on Purging Earnings and Profits
I recently wrote on a strategy for old C corporations with appreciated properties. The idea is to make an S election and wait out the built-in gains period. Among the provisions of the Jobs Act which just passed the House and is now awaiting signature is a shortening of the period to five years. This is a lot less than 10, but it is still greater than 3. So a corporation that cannot rely on having active income will still want to purge its earnings and profits before the favorable rate on dividends goes away. The shortening of the recognition period makes this strategy much more viable.
OOPS I Should Have Had A LLC
What would have happened if this were an LLC? The entity’s operating losses would have been 100% allocated to Mr. Javorski (loss allocations to Mr. Eberle would not have had substantial economic effect). It is possible that the losses would have been suspended depending on how much time Mr. Javorski spent on the enterprise and whether it would have been permissible to group it with his manufacturer’s rep activity (possibly not). Even if the losses were suspended, they would have been allowed in full since the bankruptcy would have been a total disposition.
Follow Me
Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.