In structuring a private equity fund or other tiered partnership arrangement, care must be taken to ensure the safe harbor for profits interest received for services is preserved. It is important in the issuance of profits interest to carefully document and substantiate capital account book-ups to protect against IRS contest that the interest is a capital interest. […]
Tag: Business Tax Planning
Avoiding Dividend Reclassification: Key Tax Takeaways for Closely Held C-Corporations | Clary Hood, Inc. v. Commissioner, 69 F.4th 168 (4th Circuit)
This case highlights the need for C corporations to have a dividend policy and history. It also highlights the need to carefully consider the compensation paid each year to the shareholder-employee of a closely held corporation to have better support of reasonable compensation in order to avoid the recharacterization of deductible compensation to nondeductible dividend distributions. It would likely have been tax advantageous for the Taxpayer to be an S corporation. […]
