Inter-Family Sales Using Private Annuities
Inter-Family Sales Using Private Annuities

Author: Jerome M. Hesch

Publisher:

Published: 2005

Total Pages: 0

ISBN-13:

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A growing number of tax advisors have been recommending the use of a Private Annuity Sale to a non-grantor trust in order to achieve income tax deferral. Since the income tax treatment of deferred payment sales using a private annuity is governed by Section 72, none of the restrictions which apply to installment sales under Section 453 exist. One can use private annuity sales to defer the reporting of the gain even though the sale would be ineligible for the installment method, such as a sale of marketable securities or depreciable property to a related party. Although the seller is able to defer the gain by using a private annuity sale before the property is eventually sold to an unrelated party for cash, the seller's advantages of this income tax deferral are eventually outweighed by the income tax treatment to the purchaser. When the income tax consequences to the purchasing trust are taken into account, the financial detriments to the purchaser eventually outweigh the financial benefit of the deferral of the capital gain. There are four reasons for this disadvantage, all resulting because private annuities are not subject to the OID rules. The first disadvantage is that the interest income is taxable as ordinary income, but the purchaser must treat the interest expense as a capital loss deduction. Secondly, the reporting of the interest expense, even as a capital loss, is postponed until the aggregate of all annuity payments made exceed the initial private annuity obligation. The third disadvantage results because capital losses can only offset ordinary income. If the purchaser does not have sufficient capital gains to absorb the capital loss deduction for the interest expense, the capital loss deduction cannot be used. The fourth disadvantage occurs because the interest is computed on the entire principal amount. A sale of an asset with a high basis and the sale of an identical asset with a low basis will have the same interest element even though there is less gain and consequently less income tax deferral for the high basis asset. Despite the obvious attractions of the deferral of capital gains afforded to the seller, the private annuity transaction is a detriment when the purchaser's income tax treatment is taken into account.

Family Deferred Payment Sales
Family Deferred Payment Sales

Author: Elliott Manning

Publisher:

Published: 2009

Total Pages: 0

ISBN-13:

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Although this article is more than fifteen years old, in light of the recent Tax Court Memorandum Decision in Est. of Angle, v. Commissioner, T.C. Memo. 2009-227 and earlier proposed regulations, Proposed Rules (REG-141901-05) On Tax Treatment of Exchanges of Appreciated Properties for Annuities, that are still pending, it may still be worth consulting. The issues of the proper relationship between the major types of deferred payment sales, particularly in families, that include installment sales that may include, contingent as well as fixed payments, private annuities, that are usually measured by the seller's' life, and a hybrid known as the self-cancelling installment note, which involves an installment sale that provides that payments terminate usually on the seller's death (SCINs) create tax planning issues and problems discussed in the article, but also tax policy issues because of the complex different application of the rules relating to original issue discount (OID) and the regulations relating to contingent payment sales. Many of these issues are also explored in Comment of the Real Property, Probate and Trust Law Section of the American Bar Association on REG-141901-05 (Exchanges of Property for an Annuity) (Jan.16, 2007), 2007 TNT 217-19, on which the authors participated.

An Advisor’s Guide to Private Annuities
An Advisor’s Guide to Private Annuities

Author: F. Bentley Mooney, Jr.

Publisher: AuthorHouse

Published: 2011-06-23

Total Pages: 294

ISBN-13: 1452018057

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This book may be the only complete collection of law and tactics on the use and misuse of private annuities. It is written for the professional advisor – the attorney, accountant, financial planner, and others – so it is necessarily more detailed than most lay-persons would find tolerable. To keep it readable, however, I present the information directly to the reader as end user, rather than switching back and forth from factual presentation to suggestions on how to present it to the client. As advisor, just draw the necessary inferences.

Proposed Regulations on the Tax Treatment of Private Annuities Would Generally Make them Unattractive
Proposed Regulations on the Tax Treatment of Private Annuities Would Generally Make them Unattractive

Author: Alan S. Lederman

Publisher:

Published: 2008

Total Pages:

ISBN-13:

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Private annuities have provided a way for parents to sell their businesses to their children, in exchange for the children's payments to the parents over the parents' lifetime. This technique allows control of the business to remain in the family. Meanwhile, the parents receive an income stream for life and the children benefit from future appreciation in the business value. Court decisions and IRS rulings since the 1930's have enhanced this private annuity technique by allowing parents to report their capital gains tax on the sale of their business to their children only as they receive the annuity payments over the parents' lifetime.However, prompted by perceived abuses, such as where the children soon resell the business tax-free to unrelated buyers, the IRS has proposed regulations to end the parents' capital gains tax deferral on the sale of their business for a private annuity. These proposed 2006 regulations resurrect the immediate taxation regime set forth by the IRS in 1927, even though this immediate taxation regime was rejected by the Board of Tax Appeals in 1936, rejected by the Service in 1950, and rejected by Congress in 1954 and 1963. Further, in 1966, the IRS National Office concluded that regulations could not validly be promulgated that impose immediate taxation. This abrupt regulatory repeal of a tax deferral benefit allowed for many decades raises administrative law issues as to the extent to which the IRS can reverse long-established pro-taxpayer practice by changing its own regulations.The proposed regulations have also focused estate planners' attention on economically similar replacement techniques, such as transactions involving a quot;self-canceling-installment note sale,quot; for which the IRS may favorably continue to grant capital gains tax deferral on sales of businesses by parents to children.

Tax and Financial Planning for the Closely Held Family Business
Tax and Financial Planning for the Closely Held Family Business

Author: Gary A. Zwick

Publisher: Edward Elgar Publishing

Published: 2019

Total Pages: 566

ISBN-13: 1785367765

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Tax and Financial Planning for the Closely Held Family Business serves as a manual to help business advisers devise strategies for clients dealing with family issues. Guiding family businesses through the complex maze of organizational, tax, financial, governance, estate planning, and personal family issues is a complex, time-consuming, difficult, and sometimes emotional process. This book focuses not only on identifying the problems family businesses face, but on devising solutions and planning opportunities for both family businesses and their owners. Each chapter of this book contains creative planning opportunities that advisers can suggest and help implement in order to solve real problems in the family business.

Land Rich, Cash Poor
Land Rich, Cash Poor

Author: Christian Ramsey

Publisher: Dog Ear Publishing

Published: 2007-11

Total Pages: 170

ISBN-13: 1598584642

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For many real estate investors, especially those in currently in 'retirement', cash flow becomes king. Frequently the main challenge for a real estate investor lies in how to spend the accumulated wealth. After all, you can only mortgage out so much capital before you have a negative cash flow. The effect is called being Land Rich and Cash Poor. Ultimately, every investor has to sell or gift property at some point in time. Christian M. Ramsey, a planning specialist for property and business owners, explains many important strategies to be aware of for a real estate investor that is seeking to increase cash flow (for whatever reason) by the sale of a property or a business. With case studies, comparison charts and a working knowledge of basic rules and restrictions, this book will serve to explain all of an investor's choices when seeking to sell a highly appreciated property or business. Christian M. Ramsey has been a licensed securities representative since 1996 and has been an independent financial advisor since 1998. Currently Mr. Ramsey runs a financial planning and investment advisory business in Northern California that specializes in planning and executing the strategies discussed in this book. He is also a CA Department of Real Estate Continuing Education Provider for his class on Exit Strategies, which is taught in Northern California. Land Rich, Cash Poor is the symptom associated with owning property. Every property owner is limited by how much equity that is accessible without forcing a negative cash flow or incurring a tax liability from a sale. Christian Ramsey explains some extremely complex subject matter in an easy to understand format. Core concepts are explored with story-book explanations and side-by side comparison are offered to help an average real estate investor or professional greatly expand their knowledge on how to sell or gift property. The key concerns a property owner always faces with an investment are control, cash flow and liquidity. By giving some tips from a financial and estate planner's point of view, a reader can hone in on which of the major concerns are most important when weighed against a tax advantage, as that will ultimately drive the Exit Strategy employed. The end result is that there are dozens of ways to avoid or defer Capital Gains tax, and many of these techniques also address Estate tax, which can be far, far worse. With "Land Rich, Cash Poor" your eyes will open to a world that has fascinated me for several years. The best ways to own and control an 'Asset' and simple rules that generally allow for the sale of an appreciated property to result in double or more the cash flow previously experienced. For more information on advanced financial and estate planning techniques for property or business owners visit www.planwelllivewell. com or www.realestatestrategy.net.