AboutIvan Roth Expertise Federal and State Income taxes I do tax returns for partnerships and C corporations I am well versed with State Franchise taxes for CA, CT, FL,NY,TN,TX.
Experience Eight years as tax manger for a real estate company
Question I am a minority shareholder (11.1%) in an Indiana sub-chapter S-corporation and would like to return (give back) my shares to the corporation. The shares were given to me (I have no basis) as an incentive to join the company. My problem with the current situation is that it is creating a yearly tax problem for me. There is never a distribution of profits (which I understand is legal) but I am responsible for taxes on my portion of the profits for which I have some difficulty getting the corporation to pay and when they do give me a payout in an amount to cover my taxes it then becomes income for the following year. This has become a vicious and maddening cycle causing MANY sleepless nights for my wife and I. At this point I want to return the shares but do not want to be at risk for capital gains for the current value of the stock. Can I somehow simply relinquish the shares? My agreement to receive the shares does not allow me to sell to an outside party nor does it require the corporation to buy-back on demand.
Thank you for your time and response.
Answer Hi Tom first lets look at the bright side, you are part owner of a successful corporation( albeit minority, but even so you have legal rights).Any undistributed profits are yours.
The payment of taxes on "phantom income" is no fun but if this is a legitimate enterprise it is increasing the value of your ownership
As to funds for tax payments rather than disbursing them to you as income you could arrange for loans against the value of the stock, but also consider funds they pay you as income again increases you wealth.
So if you have the means to pay the taxes on an investment and you trust the majority shareholders to do the right thing for themselves and for you. Then you should have pleasant dreams
Ps if you wish to further discuss this please do not hesitate to follow up.
