Moore Colson Newsletter

Moore Colson Newsletter - June 2005

6 ways to protect your buy-sell agreement

The Tax Court’s opinion in Estate of True, which was affirmed by the Tenth Circuit Court of Appeals last December, suggests these ways to insulate your buy-sell agreement against an IRS attack:

To support the position that the buy-sell agreement is comparable to arm’s-length transactions, the shareholders should negotiate its terms. If children are involved, they should be provided with independent legal or accounting advice.
Consult a professional business valuator to design the price formula.
Don’t structure the buy-sell agreement or establish a price formula without a contemporaneous appraisal of your business.
Be sure the buy-sell agreement provides for periodic review and adjustment of the price formula.
Make the agreement when you’re in good health.
Consistently enforce the agreement’s terms.

The Production Deduction
Congress scraps ETI exclusion in favor of new manufacturing tax break

After a series of adverse rulings by the World Trade Organization (WTO), Congress has curtailed its efforts to benefit exporters and instead provided a tax deduction for all manufacturers, whether they export or not. Plus, because the ETI exclusion is being phased out while the manufacturing deduction is phased in, some taxpayers will enjoy dual benefits in 2005 and 2006. This article explains how to benefit from the ETI exclusion before it expires and how to maximize the new manufacturing deduction.

Avert estate tax disputes with a buy-sell agreement

If you own a family business, the last thing you want is for your family to become embroiled in a dispute with the IRS over the value of your shares. Fortunately, a well-constructed buy-sell agreement can help establish the value of your ownership interest for gift and estate tax purposes, allowing your loved ones to concentrate on managing family and business affairs. This article reviews how buy-sell agreements work and how to design a watertight agreement.

Teaching right from wrong: A lesson in business ethics

As recently demonstrated by Enron and WorldCom, the unethical decisions of just a few individuals can rock a business. This article presents five steps you can take to establish a clear-cut ethics policy for your business. Your policy should reflect your business’s values, be tangible, be clearly communicated to all employees, and be updated continually. But most of all, the article emphasizes the need for the management team to lead by practicing what the policy preaches.

Buying or selling a business?
How to prepare yourself for the tax consequences

Buying or selling a business involves unending due diligence, nerve-wracking negotiations and attention to minute details. Tax considerations, therefore, often fall by the wayside. But taxes affect the true price of the business. This article outlines the various types of sale transactions you can enter and offers guidelines for determining which type is best in typical situations. For example, should you go for a stock sale or an asset sale? Typically, sellers prefer a stock sale to get capital gains treatment; buyers want an asset sale to maximize future depreciation write-offs.

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