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The Hot Dog Stand

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Friday, May 12, 2017

 

Proposed ‘Hot Dog Stand’ Regulations for Spinoffs

Browsing through the April 2017 issue of The Tax Advisor, published by the American Institute of Certified Public Accountants, Tax Division,  IRS ‘Proposed’ regulations that would impact a closely owned company caught my eye.  Two reasons: first because of the terminology, ‘Hot Dog Stand’, and second because I previously advocated a spinoff to a client.   (Reference Sec. 1.355-3, Sec. 355 (b) and Sec. 1.355-2(d).  The treasury Department in conjunction with the IRS issued proposed regulations REG-134016-15. 

By illustration assume shareholders have two active trade businesses, Company A, and the other Company B, a ‘Hot Dog Stand’ with value of $20,000,(must be a New York hot dog stand) and non-business assets (i.e. vacant land, cash, marketable securities) of two million.  The current regulations allow tax free spin-off to Company A. (Assuming certain other conditions do not deny the transaction.)  The proposed regulations would not allow the tax-free spinoff. 

The prospective date of the new regulations is generally after the date they are published.  But they would not apply to spinoffs that were in process, or had a binding agreement in place. 

If you have multiple corporations where a spin-off might be beneficial I suggest at least have a plan and a binding agreement in place. 

 

 

 

 

Tags:  finance  small business  tax 

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