Very
often, the founder of a company wishes to pass ownership of a business to his
children. But in order to get
advantageous capital gain rates, it is important to meet certain requirements.
The
IRS in a recent private letter ruling stated that the founder could first gift
a small portion of his stock to his children, and then the corporation would
redeem his remaining shares. This would
qualify him for capital gains treatment because the transaction terminated his
ownership stake in the company, and he didn’t retain any interest in the
corporation except as a creditor. The
IRS also ruled that the gift of stock that he made to his children in connection
with the redemption was not motivated primarily to avoid taxes.
The
IRS also ruled that the redemption does not result in a dividend to the
children.
Like any good CPA, I need to add a
disclaimer: Unfortunately, it is
impossible to offer comprehensive tax info over the Internet, no matter how
well-researched or written. And
remember, I love my readers, but having me bookmarked on your computer doesn’t
make you a client: Before relying on any
information given on this site, contact a tax professional to discuss your
particular situation.