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JOBNAME: Law Prac - Zwick PAGE: 1 SESS: 2 OUTPUT: Mon Jul 1 11:38:08 2019
INDEX
accounting methods 14.095–14.096 super majorities 4.105–4.106

accrual method 14.098–14.100 asset protection 8.007, 14.034
cash method 14.097
clear reflection of income 14.001–14.004 bargain sales
hybrid method 14.099 as disguised dividends 5.024
accounting period 14.104 Board of Directors
see also change to fiscal years abolition of 4.065
business purpose for other year 14.114, cumulative voting 4.108–4.110
14.118 deadlocks see deadlocks
C corporation 14.106–14.107 eliminating participation 4.048
limited liability companies and limitations on discretion of 4.065
partnerships 14.116–14.119 outside boards 3.146
personal service corporations 14.108 pooling agreements to elect minority
planning 14.135 shareholders to board 4.113
required year 14.109 quorum requirements 4.107
S corporation 14.112–14.115 right of first refusal 4.086
section 208H requirements 14.110 super majorities 4.105–4.106
tiered structures 14.120 voting agreements 4.112
accumulated earnings tax 5.117, 14.015 bonuses
additional .09% Medicare surtax (3.8% tax) C corporations 5.135
5.033, 5.077 compensation arrangements 5.138
affiliated service groups constructive receipt 5.124–5.125
defined 6.034–6.037 FICA taxes 5.141
management–type group 6.031 stock bonus for family members 5.136
alternative dispute resolution 3.164–3.166 business entity options see choice of entity
compensation issues 4.015 buy-outs
mediation 3.167 of minority shareholders 4.123–4.124
alternative minimum tax 5.077, 10.071, retirement plan funding 6.077–6.078
12.110, 13.025 buy/sell agreements
amortization deduction see sale of business enforceability of 4.101
assets family members between11.076–11.077
annuities ex-spouse purchasing 3.097 forcing a buyout 4.044–4.045
arbitration and mediation see alternative life insurance to fund a buy/sell agreement
dispute resolution 12.064
articles of incorporation mediation and arbitration provisions 3.160
minority shareholder rights 4.075–4.077 related-party rules 5.026
program requirements 4.107 stock compensation 5.055–5.067
stock transfer restrictions 4.082–4.083, stock options 5.076
4.097–4.098 stock transfer restrictions 4.084–4.091
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INDEX
valuation 4.084–4.091 retirement plans for wealth building

bylaws 16.025
quorum requirements 4.107 selection of accounting method 16.020
stock transfer restrictions 4.084–4.091 selection of fiscal year 16.016
super majorities 4.105–4.106 short term GRATs 16.064
start-up phase 16.002
cafeteria plans succession 16.030
C corporations 5.038 survey of additional planning ideas 16.058
deductibility of plan 5.031, 5.039 Tom works elsewhere, Tina joins the
capital gains family business 16.029
benefit of tax rate 3.113, 5.025–5.026 charitable organizations
compensation 5.026 beneficiary of retirement plan or IRA
ordinary income distinguished from 5.071 assets 6.85
retirement distributions 6.100–6.103 tax benefits of 14.041
sale treatment 4.142.142, 9.012 charitable planning 8.108–8.109
stock options 5.076–5.077 charitable deduction 8038
valuation effect on 11.065 charitable lead trusts 8.125
case study: topics charitable remainder annuity trusts
anticipating future increases 16.034 8.112–8.115
asset allocation/portability 16.033 charitable remainder unitrusts
bringing children into the business 8.116–8.121
16.073–16.075 gift annuities 8.111
building a business and building wealth philanthropic funds and donor-advised
16.023–16.024 funds 8.110
business tax issues 16.076 –16.082 private foundations 8.122–8.124
charitable lead trusts 16.062 valuation see valuation
combining a private annuity and a GRAT check the box regulations 14.037–14.038
16.063 childcare expenses flex plan reimbursements
consideration nearing retirement 16.083 5.039
considerations in start-up 16.005–16.006 choice of entity14.001
defining the problem 16.038 basic entity choices 14.006–14.008
early estate planning 16.028
C corporations 14.009–14.021
family split-dollar 16.061
limited liability companies
funding for college 16.026–16.027
14.033–14.034
good fortune and larger problems
partnerships 14.027–14.032
16.035–16.039
corporate general partners
governance issues 16.070–16.072
liquidity and payment of the estate tax 14.035–14.036
16.086 S corporations 14.022–14.026
make additional gifts 16.059-16.060 changes in form of entity 14.062–14.067
next phase estate planning 16.031–16.032 C corporation to 14.06814.075
options for selection of entity 16.007 limited liability company or partnership
planning for the large estate 16.057 to 14.089–14.091
potential strategies 16.039 S corporation to 14.076–14.088
practical business planning 16.067–16.069 other considerations
private foundations and supporting accounting periods and methods
organizations 16.065–16.066 14.094–14.095
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“check-the-box” regulations S corporations 5.002–5.003

14.037–14.038 separate company set up 5.157–5.159
family considerations 14.051–14.061 tax considerations 5.019–5.023
fiscal years 14.121–14.124 unreasonable compensation 5.117–5.123
interrelationship of business and competition between family members
individual planning 14.002–14.004 4.017–4.019
other business trust and tax-exempt conflict resolution 3.042–3.067
entities 14.039–14.042 active role of advisor in 2.066–2.075,
planning opportunities 14.125–14.141 3.001–3.007
qualified business income deduction alternative dispute resolution 3.164–3.166
(QBID) 14.043–14.047 compensation issues 3.037–3.038
section 1202 stock 14.048–14.050 decision making process 2.032–2.034,
community property 3.038–3.041
divorce rules 3.076 disability coverage 3.063–3.065
retirement plans and 6.092 estate planning needs 3.062, 3.140
step-up in basis 9.038 family conflicts 1.020, 1.026
transfer in business ownership caused by meetings and retreats 3.140
divorce 9.110–9.114 mission statement 3.150
communication problems 3.030–3.037 outside boards 3.146–149
compensation 3.059 participation in business 2.035,
bonuses see bonuses 2.040–2.045
cafeteria plans 5.027 personality conflicts 1.030
capital gains 5.025–5.026 power struggles 3.053
cash dividends 5.023–5.024 risk tolerance 3.054
C corporations 5.002–5.003 strategic planning disagreements
comparable salaries elsewhere 5.004–5.008 3.055–3.058, 4.038–4.040
conflict resolution 2.066–2.079 succession issues 4.008–4.011,
constructive receipt 5.124–5.125 7.001–7.004
deductions for compensation 5.019 value systems of family and business 2.019
dollar limits on deductible salary varying expectations of family members
5.117–5.123 3.048–3.051
family and nonfamily members conflicts of interest
5.005–5.006 prenuptial agreements 3.093
favoritism 5.013 succession planning 7.012
fringe benefits 5.055 constitutions see family constitution
gifts made outside of workplace 5.011 control founder refuses to cede 4.020–4.021
insurance products as compensation 5.041 controlled groups
loans at favorable rates 5.055 estates and attribution 6.028–6.030
management companies 5.161 percentage ownership rules 6.028–6.030
market-based compensation system retirement plans 6.024–6.027
5.009–5.012 stock options and attribution rules
owner-employee issues 5.126–5.127 6.028–6.030
personal service corporations 5.121 corporate bylaws see bylaws
power struggles over compensation corporate culture 1.002, 1.007, 3.007–3.029
5.117–5.123 corporate resolutions super-majorities
receipt test for income tax purposes 5.028 4.105–4.106
restricted property 5.162–5.166 corporate opportunity 5.160
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Corporation deferred compensation 5.019–5.023,

accounting method used by 5.135 5.044–5.064
bonuses 5.133 C corporation sale of assets used in 6.0 16
cash dividends 5.027 C corporations 5.132–5.134
change to S corporation 14.068–14.075 Department of Labor form 5500 see form
compensation 5.132–5.134 5500
compensation practices 5.117–5.123 employee pension plans see employee
double tax 5.024, 6.017, 11.068 pension plans
ESOP and 9.099, 13.095 employee welfare benefit plans
estate planning considerations 5.049–5.045, 5.151–5.155
14.056–14.057 family attribution 5.140
income tax rates 13.052–13.053 for children of parents-owned companies
loans characterized as dividends 5.028 5.137–5.138
management company 5.161 funded plans 5.047
qualified small business stock (section phantom stock arrangements 5.065–5.072
1202) 13.022–13.030 qualified plans 5.044–5.045, 5.140
redemptions from 9.079–9.085 substantial risk of forfeiture 5.033
section 105(c) 5.150 unfunded plans 5.047
section 1244 stock 13.031–13.037 developmental stages of the family
split dollar insurance and 5.149 2.046–2.065
tax advantages 14.016–14.021 directors agreements see voting agreements
tax disadvantages 14.010–14.015 disability benefits
unreasonable compensation 5.117 deductibility of plan 5.127
used as tax shelter 14.131–14.133 disability expectations 3.063–3.065
credit for the elderly and permanently and employee benefit plans 5.044
totally disabled 5.170 long term plans 5.161
cross purchase agreements see bargain and medical expense reimbursements 5.170
sale agreements section 105(c) plans 5.150
Crummey powers short term plans 5.168
generation-skipping transfer 8.097–8.09 disclaimers and estate planning
gift interest using 8.098 jointly owned property 8.049
life insurance trusts 8.097, 12.161–12.165 post-mortem use 9.086
notice required 12.163–12.165 discounts see valuation
dissolution
deadlocks 4.057, 4.120 deadlock remedied by 4.062
breaking of by shareholders 4.09–4.066, involuntary 4.126
4.121–122 shareholder rights 13.108
buyouts as solution to 4.123–4.124 dividends
dissolution as solution to 4.126 cash dividends 5.024
going public as solution 4.125 compensation tied to performance of
preventative planning 4.066 company 5.158
reasons for 4.120 disguised dividends 5.024
remedies 4.120–4.126, 4.066 minority shareholders dividends withheld
split up as solution to 4.121–122 4.049
deceased spouse’s unused exemption amount recharacterized as 5.024
8.016–8.023 and redeeming majority shareholder stock
decision–making style 3.038 4.051–4.052
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valuation for gift tax purposes see mediation and arbitration provisions
valuation 3.057–3.165
divorce and remarriage 3.068–3.119 older family members 3.055–3.066, 3.128,
buy/sell agreements 3.109 4.038
community property states 6.092 preferred compensation at termination of
estate planning 3.773 employment 5.032
personal consequences of 3.072–3.075 shareholder-employees 4.034–4.035
post nuptial agreements 3.082–3.084 substance abuse 3.131–3.133
power struggle in business following younger family members 3.055–3.066
4.013–4.014, 4.024 entrepreneurs 2.065
prenuptial agreements see prenuptial ERISA
agreements coverage requirements 6.011–6.012
property distribution rules 3.076–3.080 disclosure requirements 6.011–6.012
retirement plan effect on 6.117 employee welfare benefit plans
restrictions in agreements 3.094–3.095 5.044–5.045
tax consequences of 3.096–3.103 fiduciary guidelines 6.054
transfer of business ownership reporting requirements 6.018
9.110–9.111 severance pay plans 6.020–6.022
DSUEA see deceased spouse’s unused top hat plans 6.018–6.019, 11.069
exemption amount vesting requirements 6.018–6.023
dynasty trusts estate planning
described 8.087–8.090 see also estate tax
and generation skipping transfer 12.159 and divorce 3.773
generation skipping transfers see
employee pension plan ERISA requirement generation skipping transfers and tax
5.044–5.045 gifts see gifts and gift tax
employee stock ownership plan (ESOP) gift splitting 8.065–8.066
contributions 9.093 leverage gifting 8.067–8.070
cost effectiveness 9.096–9.097 life insurance see life insurance
described 9.091–9.095 life settlement 8.056–8.058
funding for buy-out 13.095–13.098 lifetime gifting 8.059–8.064
funding for expansion 13.099–13.103
marital deduction, employing 8.028–8.034
leveraged ESOPs 13.104–13.109
married clients 8.041–8.042
planning with S corporation ESOP
portability 3.073, 8.014–8.023
9.098–9.101
prenuptial agreements 16.033
related party rules 15.083–15.086
QTIP trusts 8.032–8.033, 8.043–8.045
rollover treatment 9.095
sale of stock to company 9.094 reverse QTIP election 8.093
tax advantages of 9.098 second marriages 8.043–8.045
tax benefits 9.098 single clients 8.046–8.047
valuation 9.094, 11.008 estate plans
employee welfare benefit plans married clients 8.041–8.042
ERISA requirements 5.044–5.045 second marriages 8.043–8.045
multiple employer plans 5.046 single clients 8.046–8.047
employment practices 1.013–1.014 estate tax
excluding realtors from employment 4.050 see also estate planning, and generation
incompetent family members 3.123 skipping transfers and tax
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administration and losses 8.038–8.039 calculation of deferral 10.037

apportionment of tax liability checklists executor elections Ch 10
10.005–10.006 Appendix I 327
calculation 8.024 election 10.044
charitable deduction 8.035–8.037 election calculations Ch 10 Appendix
charitable planning to reduce tax III 329–330
8.108–8.127 interest 10.038
checklist of executor elections chapter 10 Graegin loans 10.039
appendix 1 327 liquidity 10.073–10.074
deceased spouse’s unused exemption liquidity worksheet Ch 10 Appendix
amount 8.016–8.023
II 328
deductions 8.027–8.039
meeting the 35 percent test
dynasty trusts 8.087–8.090, 12.159
10.033–10.036
exemption lifetime 3.010, 6.124,
need for advance planning
8.001–8.002
10.059–10.052
expenses of administration 8.038–8.039
overview 10.020
freezing value of senior interests
9.014–9.015 requirements 10.024–10.032
and income tax planning 3.062,
family business models
4.145–4.146
installment payment of see extension of three circle model 2.014–2.018
time to pay tax two circle model 2.011–2.013
jointly-owned property 8.149 family business surveys 1.004
life insurance 8.050–8.056 family decision–making style 3.038
life settlement 8.056–8.058 family developmental stages 2.046–2.065
lifetime gifts to reduce 8.059–8.074, family limited partnerships
8.100–8.103 IRS challenge 9.074–9.075
marital deduction 8.028–8.034 mechanics 9.066–9.068
rates 3.010, 6.060 non-tax advantages 9.069–9.070
and retirement plans 6.071, 6.080– 6.083, overview 9.064–9.065
6.089, 6.093–6.095, 6.124– 6.125, tax advantages 9.071–9.073
8.011–8.013 FICA
section 6166 see extension of time to pay acceleration rule 5.131
tax bonuses 5.132–5.134
self-canceling installment notes cafeteria plans 5.037–5.039
9.027–9.032 deferred compensation payments
state and federal tax 8.002 5.027–5.040
ten year extension to pay see extension of family attribution 5.140–5.145
time to pay tax flex plans 5.031
unified credit 6.124, 8.059 loans as disguised compensation 5.024
valuation of see valuation multiple family members and business
extensions of time to pay estate tax 5.140
section 6161 12 month extension phantom stock 5.065–5.072
10.014–10.018 restricted property 5.162–5.166
section 6166 10 year extension 10.019 substantial risk of forfeiture test
amount of deferral 10.021–10.023 5.030–5.031
analysis 10.073–10.074 fiduciary duty breach of 4.077, 4.081
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fiduciary duty annual per donee exclusion 9.035

see also succession plan of annuities 8.100
breaches of 4.081 of appreciated and appreciating property
entrepreneurial stage 2.059–2.060, 3.148 9.036–9.038
ownership changes 2.050 charitable gifts see charitable planning
financial security as business goal 1.016 at death 9.038
financing gift splitting 8.065–8.066
asset-based financing 13.071–13.072 grantor retained annuity trust see grantor
crowd funding 13.045–13.047 retained annuity trust
debt/equity ratio 13.004–13.020 leveraged gifting 8.067–8.074,
investment company rules 13.021 12.061–12.063
leasing versus buying 13.056–13.070 of life insurance policies 8.059–8.064,
life insurance purchase 12.084–12.104 9.033–9.035, 12.175–12.177
loans from shareholders and family net gifts 8.104 –8.106
13.040–13.044 present interest exclusion 8.011
small business corporation tax rules stock bonus for family members 5.136
13.022 valuation 8.069–8.061
venture capital 13.086–13.088 gift tax
fiscal year see accounting period chapter 14 valuation rules 15.061–15.062
flex plans charitable gift 8.035–8.036
FICA reduced using 5.039 Crummey powers 8.097–8.099
medical expense reimbursements 5.039 description 8.010
Form 5500 exemption 8.023, 8.059
penalty for missed filing 5.072 gift splitting 8,065–8.066
phantom stock arrangements 5.065–5.072 life insurance gift tax aspects
top hat plans 6.018–6.019, 16.069 12.125–12.127
welfare benefit plans 12.102 penalties tax 11.022–11.023
Form 8832 check the box regulations 13.038 rates 8.011, 8.060
see also check the box regulations taxable and nontaxable gifts 8,100
founder refuses to cede control 4.020–4.021 valuation rules 11.004–11.005
goals of business owners 1.015–1.023
generation skipping transfers and generation golden handcuffs 5.162–5.166
skipping tax goodwill
generation-skipping transfers amortization 9.012
described 8.085, 8.075–8.086 personal 11.013–11.014
dynasty trusts 8.087–8.090 related party rule 15.058–15.060
generation-skipping transfer tax valuation of 11.034
Crummey powers 8.097–8.099 grantor annuity trust see estate tax, grantor
generation-skipping tax exemption annuity trust
8.091–8.092 Graegin loans 10.039
life insurance in GST planning
12.159–12.160 hanging on too long see founder refuses to
other transfers not subject to marital cede control
deduction 8.096 harmony of family as business goal
reverse QTIP election 8.093–8.095 1.020–1.022
gifts
see also gift tax incentive stock options see stock options
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income in respect of a decedent 9.019, using the C corporation for tax shelter
16.052 14.131–14.033
income tax income tax treatment
changing fiscal years 14.121–14.124 income in respect of the decedent see
receipt test for compensation 1.031 income in respect of a decedent
selection of accounting periods and medical reimbursement plan 14.139
methods 14.094–120 nonqualified plan assets 6.08–6.081
shifting income among family members profit interest 5.085, 5.093, 5.014,
6.055 5.035, 5.115, 14.027–1.4130,
business and individual planning 15.024
interrelationships 14.002–14.005 section 105(c)plans 14.138
choice of entity tax effect 14.006–14.008 section 401(k) plans 6.022, 6.048,
basic form of entity changes tax effects 6.068, 6.072, 6.097, 6.107, 6.126
14.062–14.067 incompetent relatives
“check-the-box” regulations employment practices 3.120–3.134
14.037–14.038 individual retirement accounts see IRAs
C corporations 14.009–14.021 installment sales
corporate general partners GRAT advantages over 9.048
14.035–14.036 installment sales generally 15.017–15.023
limited liability companies loss transactions between related parties
14.033–14.034 15.030–15.034
other business and tax-exempt minority discount 15.061–15.072
entities14.039–14.042 outright sales, installment sales,
partnerships 14.027–14.032 self-canceling installment notes
qualified business income deduction compared 9.016
(QBID) 14.043–14.047 related party installment sales of
S corporations14.022–14.026 depreciable properties 15.024–15.026
section 1202 stock 14.048–14.050 spouses transactions between
family considerations 14.051–14.062 15.010–15.016
income tax issues in change of entity intestacy rules 3.074
C corporation to – 14.068–14.075 intra-family transfers
limited liability company or partnership employee stock ownership plans see
to – 14.089–14.093 ESOPs
S corporation to – 14.076–14.088 intra-family buy/sell agreements see
income tax planning opportunities buy/sell agreements
employing minor children 14.141 post-mortem techniques 9.086
income shifting among family members risks in intra-family transfers 9.007
14.126–14.030 S corporation ESOPs see ESOPs
interest charged domestic international transfer techniques 9.009–9.013
sales corporation14.140 charitable remainder trusts 9.055–9.063
management and related companies corporate redemptions to shift control
14.136–14.037 9.079
medical reimbursement plans 14.139 family limited partnerships 9.064–9.075
multiple entities 14.134 see also family limited partnerships
planning with the selections of the freezing the value of senior interests
accounting methods 14.135 9.014–15
section 105(c) plans 14.138 gifts 9.033
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grantor retained annuity 9.039 use of qualified plan money

outright sales and installment sales and 12.098–12.101
self-canceling installment notes welfare benefit plan 12.102–12.104
compared 9.016 overview of tax aspects of life insurance
private annuities 9.021 12.105–12.127
sale to defective grantor trust 9.049 estate tax aspects 12.117
self-canceling installment notes 9.027 gift tax aspects 12.125–12.127
wealth transfer through new company non-deductibility of premiums
formation 9.115 12.113–12.118
tax-exempt proceeds 12.106–12.111
investment company incorporation of 13.021
tax-free withdrawals 12.112
IRAs
purposes of life insurance 12.060–12.083
see also Roth IRA, Roth 401(k)
compensation 12.072–12.074
averaging 6.101–6.102
estate builder 12.063
beneficiary designations 6.082–6.087
funding a buy-sell agreement 12.064
charity as beneficiary of IRA
investment 12.071
assets 6.079–6.086 key man insurance 12.065–12.070
excise taxation 6.112 leveraged charitable and family gifting
income tax 6.111 12.081–12.083
nondeductible contributions to 6.071 provide for family on premature death
recalculating life expectancies 6.085 12.075–12.080
rollovers to 6.112–6.114 to pay estate tax 12.061
spousal rollovers 6.115–6.116 reviewing life insurance proposals
survivors’ rights in 6.088–6.090 12.033–12.059
cost indices 12.041–12.042
key employees 6.023, 6.054 due diligence 12.048–12.051
phantom stock arrangements 5.065–5.072 endowing at age 100 12.046
sale of business to 7.022–7.023 loaded versus no-load policies
separate company set up with 12.058–12.059
5.157–5.159 rating services 12.052–12.057
split dollar insurance arrangements “skinny universal life” 12.047
12.088–12.097 vanishing premium and single premium
12.043–12.045
leasing variables 12.036–12.040
advantages of leasing equipment special features 12.026–12.033
13.056–13.065 disability and waiver of premium riders
diverting funds out of family business 12.028–12.029
4.055–4.056 other features 12.030
nontax factors 13.069 paid-up additions 12.027–12.027
sweetheart leases 4.056 types of insurance 12.004–12.025
tax advantages 13.061–13.070 term insurance 12.005–12.011
life insurance term/whole life mix 12.024–12.025
financing the purchase of life insurance universal life 12.016–12.020
12.084 variable life 12.021–12.023
borrowing to purchase 12.085–12.087 whole life 12.012–12.015
split-dollar arrangements life insurance planning 10.007–10.010
12.088–12.097 limited liability companies (LLCs)
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see also partnerships cumulative voting 4.108–4.110

changes in form of entity to 14.094 dividends withheld from 4.046
flow through taxation 5.002 family members as 4.070–4.0474
income tax planning for 14.089–14.093 nonfamily minority shareholders
options for selection of business entity 4.075–4.077
16.007–16.015 preemptive right 4.111
self-employment tax 5.038 super majorities 4.064
tiered structures 14.120 transferability of stock 4.078
liquidity veto power maintained by 4.080, 4.092,
see also 12-month extension to pay estate 4.103–4111
voting agreements see voting agreements
tax, ten-year extension to pay estate
mission statements 3.150
tax, redemption at death
model of family businesses
causes and consequences of illiquidity
three circle models 2.014–2.018
10.001–10.004
two circle model 2.011–2.013
the estate plan 10.005–10.006
money purchase plan 6.048, 6.120
liquidity analysis 10.073–10.074
liquidity worksheet Ch 10 Appendix II 328 net gifts 8.104–8.106
loans diverting finds out of the business net investment income tax (3.8% tax) 5.024,
4.054–4.057 9.012, 13.052 14.021
longevity of family businesses 1.066, 1.012, nimcrut 8.104–8.106
2.05 non-participant shareholder 4.072–4.074
nuisance suits by minority shareholders
management companies forcing buyout 4.045
advantages of 14.136–14.137
described 5.561 participation in business
management practices children as nonparticipants 2.042–2.043
lack of professional management 4.002, conflict resolution 2.060–2.079
4.032 differing cash needs of participants and
shareholder-employees 4.072–4.074 nonparticipants 2.059
marital deduction see estate planning and expectations of the participants and
estate tax nonparticipants 2.042–2.043
marriage power struggles between participants and
causing power struggle 4.037 nonparticipants 2.042–2.043
prenuptial agreement 3.082–3.093 partnerships
related party rules 15.010–15.016 see also family partnerships, limited
spouse, role of 2.046 liability companies
medical expenses accounting year-end 14.116–14.119
disability insurance reimbursement basis of partnership interest 14.025
5.167–5.170 changes in form of entity to 14.094
employee benefit plans 5.046 FICA tax planning 5.034–5.038
flex plan providing reimbursements 5.039 flow through taxation 5.002
minor children employed in family business income tax planning for 14.089–14.093
14,141–14.143 options for selection of business entity
minority shareholders 1.031 16.007–16.015
articles of incorporation 4.049–4.083 partnership to hold insurance
buyouts 4.123–4.124 12.131–12.132
corporate bylaws 4.049, 4.083 profits interest 5.085–5.092
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self-employment tax 5.034–5.035, 5.038 validity of 3.085–3.089

tiered structures 14.120 see marriage and divorce
passive income private annuities
passive activity loss rules 15.077–15.082 combining a private annuity and a GRAT
sales of passive activities to related parties 16.063
15.077–15.082 contributions to 6.046–6.048
perpetuation of the business as a goal described 9.021–9.026
personality conflicts self-canceling installment note compared
conflict resolution 2.066–2.079 9.027–9.028
power struggles caused by 4.025–4.028 spousal rights 6.120–6.121
personal service corporations
QBID see qualified business income
accounting required year 14.107–14.108
deduction
deferred taxes 5.132–5.133
qualified business income deduction
defined 16.009–16.010
14.043–14.047
section 280H requirement 14.110–14.111 qualified personal residence trust
tax rates 13.006, 13.052–13.053, 14.021 described 8.071
tax savings 12.111 gift splitting 8.066
phantom stock valuation for gift tax purposes 8.068
described 5.065–5.072 qualified plan see retirement plans
nonqualified deferred compensation rules qualified small business stock exclusion see
5.144–5.147 section 1244 stock
stock appreciation rights 5.073–5.074 qualified terminable interest property
power struggles 4.001–4014 defined 8.030
compensation issues causing 4.042–4.043 Election 8.031–8.037
deadlocks see deadlocks reverse QTIP election 8.093–8.095
different operating philosophies causing second marriage situations 8.043–8.044
4.042–4.043
divorce causing 4.013–4.014, 4.024 rabbi trust 5.048–5.050
expectations of participants and rabicular trusts
nonparticipants 3.049 –3.052 see also rabbi trust and secular trust
founder refusing to seek control described 5.052–5.053
4.020–4.021 funding 5.050
incompetent relatives causing substantial risk of forfeiture 5.048
4.030–4.035 tax consequences 5.052–5.053
managerial vacuum causing 4.009 redemptions at death (section 303
marriage causing 4.037 redemptions) 10.054
personal ambitions and self-interest advance planning 10.062–10.066
causing 4.028–4.031 checklists executor elections Ch 10
personality conflicts causing 4.025–4.028 Appendix I 327
preventative planning 4.058–4.061 described 10.054
rivalries between family members dollar limitation 10.060–10.061
4.012–4.019 election 10.068
squeeze outs see squeeze outs election calculations Ch 10 Appendix III
that individual causes 4.008–4.014 329–30
prenuptial agreements 3.082–3.093 income tax consequences 10.055
alternatives 3.094 life insurance funding planning for
drafting suggestions 3.087 10.068–10.071
541
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liquidity rentals passive activity rules 15.077–15.082

analysis 10.073–10.074 restricted property 5.162–5.166
liquidity worksheet Ch 10 Appendix II restricted stock
328 see also phantom stock, stock appreciation
thirty five percent rule 10.058 rights
related business entities described 5.055–5.064
see also controlled groups mechanics 4.093–4.098
affiliated service groups 6.034–6.037 S corporation 5.060–5.065
attribution rules 6.028– 6.031 UCC requirement 4.094
brother-sister group 6.026–6.027 valuation of restricted stock 5.064
businesses under common control retirement plans
6.032–6.033 see also golden handcuffs, restricted
retirement plans 6.023, 6.047 property, section 83(b) election,
estates and attribution 6.028–6.030 related entities
percentage ownership rules 6.028–6.030 basics 6.001–6.002
retirement plans 6.024–6.027 comparison of tax situation with and
stock options and attribution rules without qualified plans
6.028–6.030 6.007–6.010
related party rules potential problems 6.003–6.004
accrued expenses between related parts qualified plans 6.006
15.035–15.039 qualified versus non-qualified plans
anti-churning and other rules 6.005
15.058–15.060 distribution planning 6.079
capital gains versus ordinary income beneficiary designations 6.082–6.087
15.027–15.029 benefit options 6.091
chapter 14 valuation rules estate planning and pension plans
15.061–15.072 6.093
checklist related party transactions and pensions and divorce 6.092
family attribution, Table 15.1 stretching out distributions
15.001 6.094–6.095
compensating family members survivors rights in pension plans
15.040–15.043
6.088–6.080
controlled groups 15.002–15.0 09
tax effect of combined income and
ESOPs 15.083–15.086
estate taxes 6.080–6.081
installment sales 15.017–15.023
non-qualified plans 6.011
loss transactions between related parties
benefits of non-qualified plans 6.012
15.030–15.034
minority discount 15.061–15.072 common names to identify
related party installment sales of non-qualified plans 6.022
depreciable properties 15.024–15.026 disadvantages of non-qualified plans
sales of passive activities to related parties 6.013–6.017
15.077–15.082 ERISA requirements 6.018
taxation of regular corporations and their severance pay plans 6.020–6.061
shareholders 15.044–15.057 top-hat plans 6.019
transactions between spouses planning problems 6.123
15.010–15.016 estates with large qualified plan assets
remarriage see divorce and remarriage 6.124–6.125
542
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impact of family attribution goodwill 9.012

6.126–6.128 installment sales 9.013
liquidity problems 6.129 private annuities 9.012
qualified plan design 6.042 self-canceling installments notes 9.013
creative uses in family succession, taxes 9.012
buyouts, and wealth transfer to sale to a defective grantor trust
children 6.077–6.078 description 9.096–9.054
rules of thumb 6.074–6.076 life insurance to reduce estate tax 8.051
skewing benefits toward family owners tax savings 9.051–9.052
6.066–6.076 S corporations
types of plans 6.043–6.065 buy/sell arrangements 12.135
special considerations with multiple changes in form of entity to
family members or related entities 14.069–14.072, 14.076–14.087,
6.023 14.094
affiliated service groups 6.034–6.037 choice of entity 14.22
attribution rules 6.028–6.031 compensation 5.002 5.117,
businesses under common control 15.041–15.042
6.032–6.033 dividends 5.024, 5.028
controlled group rules 6.024–6.027 ESOPs 6.060, 9.099–9.103
excess accumulations and distributions FICA 5.028, 5.038
6.070 flow through taxation 5.002
leased employees, owners and directors interest expense limitation 13.061
6.038–6.041 options for selection of business entity
life insurance in qualified plans 16.007–16.015
12.147– 12.1 52 redemption related parties Chapter 15
taxation of 6.096 Appendix 500
divorced spouses 6.117–6.119 required year 14.112–14.115
income taxation of retirement income restricted stock 5.060
6.097 section 1202 stock 13.022–13.030
long-term capital gain treatment self-employment tax 5.038
6.100–6.103 stock options 5.083, 5.148
lump-sum payment 6.098–6.099 tax considerations 5.020
rollovers 6.112–6.114 tax rate 13.054–13.055
Roth IRA, Roth 401(k) and section 83(b) elections 5.060, 5.063, 5.090,
conversions to Roth IRA 5.163
6.104–6.108 and stock options 9.048
spousal rights 6.120–6.122 corporations 5.150
spousal rollovers 6.115–6.116 section 199a 5.002, 5.030, 5128, 13.054,
withholding 6.109–6.111 14.021
risk tolerance family members section 303 redemptions see redemptions at
3.053–3.054 death (section 303 redemptions)
Roth IRA 6.104–6.108 section 401(k) plans
Roth 401(k) 6.104–6.108 see also Roth 401k)
described 6.053-6.054
sale of business assets 9.012 limits 6.068, 6.075
amortization deduction 9.012 section 501 (c)(3) 8.123, 14.041
543
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INDEX
section 1202 stock 13.022-13.030, limiting participation on board of

14.048-14.050 directors 4.041
section 1244 stock loans and leases diverting funds 4.055
qualified small business stock exclusion waste of corporate assets 4.054
section 1244 qualification 13.031–13.037 withholding dividends from minority
tax rules 13.02 shareholders 4.049
section 6166 see extension to pay estate tax state and local taxes in retirement 5.151
secular trust stock appreciation rights
see also rabbi trust and rabicular trust see also phantom stock
described 5.051 described 5.073–5.075
tax consequences and disadvantages stock bonus plans
5.051 in context 6.055
self-cancelling installment notes (SCINs) spousal rights 6.120
see also sale of business assets stock options
advantages 9.027–9.028 buy sell agreements 5.076
described 9.013, 9.027–9.032 capital gains 5.077–5.080
outright sales, installment sales, and nonqualified deferred compensation
self-canceling installment notes 5.141–5.145
compared 9.016 non-statutory options 5.081–5.084
risk premium 9.029 S corporations 5.148
self-employment tax statutory options 5.077–5.080
partnerships 5.034–5.035, 5.038 taxable event upon grant option
separation see divorce and remarriage 5.081–5.084
severance pay 6.020–6.021 stock ownership
shareholder meeting basis 3.106
quorum requirements 4.107 squeeze outs see squeeze outs
supermajorities 4.105 stock appreciation rights 5.075–5.077
small business corporations see section 1244 transferability of stock 4.082–4.085
stock transfer restrictions see stock transfer
soft issues 3.006 restrictions
special use valuation see valuation unrestricted stock 5.0 55–5.064
valuation see valuation
special use valuation (section 2032A)
stock redemption
described 9.089–9.090
see also redemptions at death control shifts
highest and best use 11.011–11.012
using
spit dollar insurance 12.072–12.073, 12.088,
corporate redemptions to shift control
12.090–12.097
9.079
estate tax 12.096 forcing a buyout 4.051–4.053
exit strategy 12.095 from C Corporations 9.079–9.085
Illusory benefit 12.089 incident to divorce 3.104–3.119
Intergenerational split dollar 12.146 stock transfer restrictions
loan regime 12.094 basic overview 4.082–4.083, 4.097–4.098
split ups buy/sell agreements 4.099–4.101
deadlocks resolved 4.121–4.122 directors’ approval 4.085
spouse, role of 2.046 mandatory sales 4.089
squeezeouts prohibition against transfers to specified
excluding relatives’ employment 4.05 person 4.090
544
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right of first refusal 4.086–4.088 unified credit

shareholder approval 4.085 Uniform Commercial Code
state law applicable to 4.065–4.067 stock transfer restrictions 4.094
Uniform Commercial Code provisions unrelated business income
4.094 see also section 501(c)(3)
validity of 4.092 applications 8.118, 9.057, 14.041
strategic planning 3.151–3.155
substance abuse by employees 3.094 Valuation
substantial risk of forfeiture planning opportunities and issues
compensation issues 5.047, 5.057, 5.064, buy-sell agreements 11.069–11.079
5.092 effect of capital gains and built-in gains
deferral 5.141–5.142 taxes on valuation 11.065
FICA 5.031–5.033 family limited partnerships restrictions
and section 409A 5.094 affecting valuation 11.080
succession planning FLP court cases under a variety of
anti-meddling provision theories 11.088–11.099
checklist chapter 7 appendix 228–229 lapsing restrictions – I.R.C. section
co-successors 7.086–7.088 2704 11.081–11.082
conflict resolution and 2.066–2.079 tiered entities 11.083
conflicts of interest 7.012 purpose of the valuation 11.003
divorce effect 7.060 effect on value 11.004–11.014
emotional component of 7.001–7.004 penalties 11.022–11.023
and estate taxation 7.009, 7.065 publicly traded vs. closely held
founder refusing to cede control corporations 11.015–11.017
4.020–4.021 strategies for valuation reports
and generation skipping transfer tax 11.018–11.021
7.028 Rev. Rul. 59–60 11.024
grantor retained annuity trust concept of the willing buyer and willing
post succession role of founder seller 11.025–11.031
7.007–7.082 effect of industry rule-of-thumb
power struggles where lack of valuations 11.047–11.052
4.015–4.016 effects of bona fide offers and recent
prenuptial and postnuptial agreement in transactions on valuation
sale of business 7.022–7.023 11.045–11.046
sale of stock using 7.077–7.082 eight valuation factors 11.032–11.043
sale to defective grantor trust practicality of comparing private and
selection of successor 7.047–7.055 public companies 11.044
written plan 7.062–7.076 valuation discounts 11.053
blockage discounts 11.058
target benefit plans cross tested plans IRS attack of discounts under I.R.C.
compared 6.018, 6.065 section 2036 11.084–11.087
tiered structures 14.120 lack of control 11.054–11.056
top hat plans lack of marketability 11.057
described 6.018–6.019 limitation on discounts – the willing
filing requirements 5.065–5.072 seller 11.064
transfer for value 8.053–8.056, 10.008, potential whipsaw-control premium
12.108–12.109, 12.153–12.154 11.062–11.063
545
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INDEX
range of discounts, expected IRS voting trusts 4.114

reactions 11.066–11.068
stock restrictions 11.059–11.060 waste of corporate assets 4.054
swing vote attributes 11.061 wealth replacement planning described
voting agreements 12.155–12.158
directors agreements 4.118-4.119 who is the client? 1.047–1.049, 7.012
pooling agreements 4.113
546
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JOBNAME: Law Prac - Zwick PAGE: 1 SESS: 2 OUTPUT: Mon Jul 1 11:38:08 2019

accounting methods 14.095–14.096 super majorities 4.105–4.106

valuation 4.084–4.091 retirement plans for wealth building

“check-the-box” regulations S corporations 5.002–5.003

Corporation deferred compensation 5.019–5.023,

administration and losses 8.038–8.039 calculation of deferral 10.037

fiduciary duty annual per donee exclusion 9.035

grantor retained annuity 9.039 use of qualified plan money

see also partnerships cumulative voting 4.108–4.110

self-employment tax 5.034–5.035, 5.038 validity of 3.085–3.089

liquidity rentals passive activity rules 15.077–15.082

impact of family attribution goodwill 9.012

section 1202 stock 13.022-13.030, limiting participation on board of

right of first refusal 4.086–4.088 unified credit

range of discounts, expected IRS voting trusts 4.114

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