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Federal Tax Update — June

from By David S. De Jong, Esq., CPA, Stein Sperling Bennett De Jong PC

Final regulations under Code Section 108 require that the ultimate owners, rather than the disregarded entities themselves, grantor trusts and single-owner limited liability companies must be in bankruptcy or otherwise insolvent to fall within either of these exceptions to the general rule that relief from indebtedness is taxable.

In Belot v. Commissioner, TC Memo 2016-113, the U.S. Tax Court determined that a "sale, assignment and transfer" of shares of stock and membership interests between spouses per a second agreement 13 months after the original marital settlement, which contemplated the parties owning and operating a business together, was a tax-free transfer incident to a divorce. This decision was made notwithstanding the existence of a prior agreement and the transactional-type language in the second agreement. more


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