The IRS code says that transfers between immediate family members is deemed fraudulent on its face. Without having to evaluate the facts, the code says that it is natural and anticipated that children will lie for parents as will brothers and sisters and parents lie to protect and help each other. Its a natural occurrence, so frequently experienced that the IRS code determined to end this matter by simply deeming all such transactions between immediate family members fraudulent on its face, therefore eliminating the requirement for evaluating this issue all together.

That’s the bad news. The good news is I have arranged many such transfers of assets between family members despite the above described barrier by arguing the following facts to the revenue officer with the following logical arguments.

1. The business is not readily marketable to the general public, it loses money , and is a niche provider with few valuable assets thus basically unmarketable.

2. We have the assets appraised and although immediate family they are willing to pay fair market value for them, assuring the IRS that they are getting fair consideration for the release.

3. We “retire” the original tax offending family members out of ownership of the new entity although allow consulting or even employment by the new entity.

This has worked repeatedly. It is also a natural evolution as frequently know one else would purchae so this creates a natural and advantageous opportunity for both sides. Additionally it may protect family income and long term work effort, perhaps saving jobs and opportunity were there may be few alternatives.

I have found repeatedly that while clearly not intended by the code, the IRS agents empowered to defend and support the code, understand the benefits to both sides if this is type of transition is permitted under carefully considered circumstances.

It is important when contemplating such a transition that it is discussed with the IRS agent in advance and acceptance of the plan is obtained. I would recommend this factor be included in the Purchase and Sales contract clearly stating the facts and the relationship so all is out and on the table for everyone to see and understand.

It would be foolish to permit a “responsible person” from the original offending company to take an ownership position or for that matter any previous owner be them responsible or not. Additionally, it would also be inadvisable for a previous owner to be an authorized check signer for the new company.There needs to be a 100% transition between the previous owners and the current new owners, especially if they are family. In other words, there needs to be a clean break between the old and the new.

This also permits for a seamless transition, without business interception, which may be critical to the business surviving.

Thus do not reject this opportunity just because the tax code says it is not permissible. With the right circumstances, it can be done. Call for help 413-549-2966.