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lack_of_business_purpose_step - 15 The corporation then...

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Lack of Business Purpose or Step Transactions Mr. Palmer decided to sell one of his assets. The sale would generate a $45,000 gain on which he would have to pay tax at 35%. Mr. Palmer intended to invest the after-tax proceeds from the sale into his family business. Instead of selling the asset directly, Mr Palmer formed a new corporation and transferred the asset to the newly formed corporation. The new corporation immediately sold the asset and paid tax on the $45,000 gain at
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Unformatted text preview: 15%. The corporation then made a long-term loan of the after-tax cash to Mr. Palmer’s family-run business. The IRS concluded that the Mr. Palmer had no bona fide business purpose for creating the new corporation other than tax avoidance. It disregarded the creation of the new corporation and treated Mr. Palmer as the seller of the asset. As a result he had to pay tax on the gain at the 35-percent rate....
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