This course discusses whether a note modification is an exchange. This may be particularly important to irrevocable grantor trust planning if the bill to fund infrastructure passes. The presenter will also discuss selected common reorganizations of private businesses and how IRS practice units address partnership tax issues as well as planning for an irrevocable trust selling a pass-through entity to avoid tax traps and other opportunities.

The presenter will discuss which note modifications constitute an exchange, plans to pay in kind rather than with cash, and strategic issues in trying to discount notes. The presenter will analyze how these inform planning if the infrastructure bill is passed, but this knowledge is important whether or not it is enacted.

Then the subject matter will shift to reorganizing private businesses. Although one proposal would allow certain pre-1997 S corporations to convert tax-free to partnership income taxation, the presenter will discuss how to migrate future increases in value, and perhaps most of the current value, to partnership taxation even without this change. This will also include a 2021 letter ruling on how to isolate risky elements of a business from less risky components. Finally, the presenter will briefly review IRS Practice Units issued in 2020-2021 relating to selected partnership issues and where to find them in the accompanied materials.

Topics also discussed include planning to avoid tax traps and how to take advantage of opportunities when a trust sells stock in an S corporation, including riming for turning off grantor trust powers, watching for mismatches between expectations when selling and what appears on each owner’s K-1, in addition to not only anticipatory but also retroactive planning for QSSTs. The presenter will mention how some of that differs from planning for the sale of a partnership interest.

Learning Objectives:

• Identify when a note modification constitutes an exchange


• Give examples of plans to pay in kind rather than in cash


• Describe tax effects of discounting notes


• Describe how the above discussion informs planning under the proposed infrastructure bill


• Summarize S corporation migration to S corporation parent with LLC subsidiary, including a brief explanation of qualified subchapter S subsidiaries followed by admission of members


• Describe a 2021 private letter ruling on isolating business risk in S corporation structure


• Give examples of tax effects of liquidating distributions or sale of a partnership interest


• Recall how to turn off grantor trust status in anticipation of a sale and related post-sale reporting of income


• Describe participation in light of net investment income (NII) tax


• Give examples of QSST opportunities after-the-fact