Intra-Family And Other Business Transfer Techniques - Answer Key
All of the above are true statements. Kevin's taxable gift is FMV less sales price, or $500,000. Kevin has a taxable gain of $100,000 ($500,000 consideration less $400,000 basis).
The gift or sale leaseback involves the transfer of the business property by the seller, and then a leaseback of the property by the seller from the new owner in order to continue the operation of the business interest.
The primary difference between a private annuity and a SCIN is that a private annuity is an unsecured promise to make lifetime income payments; whereas, the SCIN is a secured promise to make lifetime payments. Both pay income for life, cancel at death and remove the asset from the seller's estate.
4. B The buy-sell agreement is a business continuity agreement that is put in place while the owners are still alive and running the business. At the death of the owners, the new owners take over the operation of the business. Assets are not removed from the estate and buyers are already predetermined in the buy-sell agreement.
The purpose of the intra-family loan is for the younger family member to have access to cash (loan) to buy the business interest from the senior family member. The senior family member loans the money (at an interest rate applicable to the current federal rate). Ownership of the business changes interest and is removed from the estate of the original owners. The loan recipient must pay interest on the loan or the IRS will treat the transfer as a taxable gift.