RECAP: 2018 FOX Family Office Forum


Considerations for Converting Business Structures

Mark J. Blumenthal, CPA, Partner, Plante Moran
Domingo Such, Partner, Firmwide Chair, Family Office Services Practice, Perkins Coie LLP

Session Description: 

The 2017 Tax Act presents planning opportunities around the choice of entity. Existing clients with pass-through entities like S-Corporations and LLCs should consider if maintaining this status is prudent given the recent changes in the tax law. In the past, C-Corporations considered becoming pass-through entities to avoid two tiers of tax. What is best for a particular client situation will challenge past thinking, as the choice of entity for optimization is dependent on facts and circumstances.


Key Takeaways: 
  • Key tax law change highlights include: 21% corporate tax rate, elimination of personal exemptions, increased standard deduction, and modifications to many itemized deductions, including:
    • New limitations on state and local tax deductions and home mortgage interest deductions
    • Elimination of miscellaneous itemized deductions
    • Elimination of itemized deduction phaseout
    • Increase in charitable cash contribution limitation
  • Deduction changes for trusts include: $10,000 Limitation on State and Local Taxes; 2% itemized deductions eliminated; trustee fees remain deductible; tax determination and preparation fees remain deductible
    • This illustration outlines the key considerations for anyone considering the sale of a Corporation or Partnership. Participants were encouraged to evaluate their options carefully and not rush to change entities to C-Corporations without considering the long-term realities of this decision. There is no one-size-fits-all solution.
  • While the Lender Management, LLC v. Commissioner ruling is considered a “win” for family offices that use a profits interest structure, it is critical to consider the specifics of each family’s situation to determine whether a profits interest structure makes sense for the family. More insights on this topic can be found in the FOX Hot Topics Webinar: Profits Interest Structure here.
  • The speakers explored several case studies on entities shifting from an S-Corporation to a C-Corporation, making it clear there are important considerations to keep in mind, including the uncertainty about the corporate tax rate after 2025, when the current provisions expire. Families converting to a C-Corporation should also be mindful of the provision requiring a five-year period before reverting to another type of entity.
  • Participants were encouraged to include their accounting advisors in the evaluation process to ensure that all costs inherent in the accounting required of various structures are factored into the decision.

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