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Therefore, my suggestion is to advice a 1031 exchange. The purpose of the IRC section 1031 is to defer; in this case the LTCG, on selling the property, by exchanging it for similar property. You would be able to use 100% of the current property equity to purchase property that is substantially of “like-kind”. By taking advantage of IRS code section 1031, no gain would be recognized, however, you would have to identify the potential replacement property or propertieswithin the first 45 days of the 180-day exchange period (Anderson, Pope, Rupert, 2016.) Limited Liability Protection: When one chooses a business entity, they must consider their exposure to liabilities, as well as make an effort to minimize taxes, yet ensure that the business can be financed in a manner that will allow the business to be ran efficiently. Therefore,upon reviewing business entities, one must consider: (1) the degree to which ones personal assets6 | P a g e
Final Projectare at risk from potential liabilities that may arise from their business; (2) how to research and pursue tax advantages when comparing business entities in order to avoid the potential for multiple layers of taxation; (3) the business ability to seek and attract potential investors; (4) the ability to share with employee’s an opportunity for ownership to key employees; and (5) the cost of operating and maintaining the business entity in order to earn a profit and continue to grow (Nationwide Incorporators, 2016.) Sole proprietorships, partnerships have unlimited liability, however, C corporation, S corporation and an LLC all have limited liability. Sole proprietorships and partnerships pass-through the income and losses to the individual owner, yet has unlimited liability. Therefore, if we look at an LLC, it is not a corporation, but it shares limited liability with both the C and S corporations. It shares with a sole proprietorship, partnership and an S corporation the availability of pass-through income taxation. Bob, you have a personal wealth of $14,000,000. Much of that wealth is from the gain in value of the land that you bought in 1966 at $450,000. You need to protect your personal wealth, by selecting a limited liability business entity that will protect you and your daughter’s personal wealth. S corporations are often formed for purposes of protecting their shareholders from liability. However, if you and your daughter are the only shareholders, and informalities may not be followed, the corporation is not adequately capitalized, or personal and corporate funds are intermingled, the corporate veil can be easily pierced by a court, which the result may be personal liability for the shareholders.I have suggested to you that you look to IRC section 1031, when selling your property. Because of your ownership of the land, your net worth is high, and you will have a huge capital gain if you do not exchange it for like-kind property as an investment. However, I understand 7 | P a g e
Final Projectthat you will NOT be able to do so at this time, as you will need the proceeds reported on form 1099-S to use as start-up capital for your business.