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Member
Group: Forum Members
Last Login: 8/12/2010 2:50:55 PM
Posts: 1,
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A father who owns 50% of a business (his brother owns the other 50%) gifts a minority stock position to his son. A buy-sell agreement states that the stock may not be transferred outside the family (including spouses), and if the son predeceases the father or gets divorced the company may repurchase the stock for $1.
1. Does IRC 2703 apply to the initial gift to prevent the father from discounting the gift for the restrictions on transfer and repurchase option? Is it possible that the exception to 2703 would apply since the primary intent was to keep the stock in the family rather than to avoid taxes?
2. Upon a triggering event, are there any tax consequences of the son (or his estate) selling stock back to the company for $1? For instance, could this be considered a gift back to the shareholders equal to the fair market value of the stock less $1? Would the son (or his estate) report a capital loss on the sale? Would there be any gain recognized by the other shareholders?
3. If the repurchase has undesirable tax consequences, is it possible to design the restrictions to achieve a better result? For example, what if the restrictions on transfer and repurchase applied equally to all shareholders rather than just the son, and were implemented via stock legends and provisions of the bylaws and/or articles?
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