Father and son are co-owners of a manufacturing company, with the father having transferred some of his stock to his son in previous years. There is no debt in excess of stock basis. The father retained the land and buildings from which the company operates, and leases the land to the company at below-market rates. The father’s land includes excess property that has development potential and is in an area where property values are appreciating rapidly. Note, however, that the manufacturing process may be generating environmental hazards that could affect land values. The father is nearing retirement and wants to continue transferring ownership to his son. Additionally, he believes that his family would face significant estate tax problems due to the dollar value of his assets.
He has asked you to review his current situation and discuss the U.S. tax and non-tax issues you believe should be considered.
You may consider the following issue as part of your research. These are suggestions:
1. Advantages and disadvantages of transferring real estate to a corporation, either a C or S, or to a partnership. Consider concerns relative to appreciated property; individual vs. corporate tax rates; flexibility for developing excess property.
2. Do you feel there are any advantages to possibly operating the company as a partnership?