Purchase and Sale Transactions

Report
Miki Okumura
Michael O’Malley
Goodsill Anderson Quinn & Stifel
Honolulu, Hawaii
March 21, 2014
Structuring Issues
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Choice of entity
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LLC, limited partnership, S corporation
Tax basis for debt
Tax allocations
Passive activity loss rules
At risk rules
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Structuring Issues
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Stock vs. asset sale
Sellers want stock sale
Buyers want asset sale
IRC Section 338 election
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Stock sale treated like asset sale
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Structuring Issues
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Capital gains tax treatment
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Developer status – ordinary income
Inventory – ordinary income
Depreciation recapture – ordinary income
Recent developments
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3.8% net investment income (NII) tax
IRC Section 752 proposed regulations
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Closing Conditions and Deliverables
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Purchase price allocation
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Parties essentially have to agree
IRS Form 8594
Tax allocations
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GET – taxable items
Conveyance tax – transfer of multiple
properties
Real property tax – allocating liability
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Closing Conditions and Deliverables
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Closing deliverables
• Tax clearance certificate
• Bulk sales report (Form G-8A)
• FIRPTA/HARPTA withholding – who is
the “transferor” if there is a
disregarded LLC?
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1031 Exchanges – Current Issues
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LandAmerica – QI bankruptcy case
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Same taxpayer requirement
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Co-tenancy arrangements
Safe harbor for residential property
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PLR 200732012
Rev. Proc. 2008-16
NII tax – 1031 deferral applies
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Tax Credits
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Recent developments
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Historic Boardwalk Hall (3d Cir. 2012) –
federal tax credits disallowed to investor who
was deemed not to be a bona fide partner
Rev. Proc. 2014-12 safe harbor
New markets tax credits (NMTCs)
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Lease Transactions
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Lease premiums
Long-term lease (30 yrs.+) = fee
Tax “owner”
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Depreciation
Operating deductions
Uneven rents -- IRC Section 467 (below)
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Foreclosure/Deed in Lieu Transactions
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Cancellation of debt income (CODI)
IRC Section 108
Exceptions
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“Qualified real property indebtedness”
Insolvency
Recourse vs. nonrecourse debt
Debt modifications
1031 exchange out of foreclosure?
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Section 467 Rental Agreements
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Rental agreement for tangible property
(a) At least one payment for use payable
after year of use; or (b) stepped rents
(increasing or decreasing rents)
Constant rent accrual rules determine rent
for both landlord and tenant
Safe harbors and exceptions
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Passive Activity Loss (PAL) Rules
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IRC Section 469: PALs deductible only against
passive activity income/gains
Material participation rules
Real property rental activities are per se passive
PALs accrue and carry over until passive income is
earned or activity is disposed of
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State Tax – Recent Audit Issues
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Hotel properties – GET and TAT issues
Timeshare properties – GET and TAT
issues
Owner builder – GET issues
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Real Property Tax – Recent Developments
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Tax rates based on actual use
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Kauai County – effective 2013-2014
C&C Honolulu – residential rate for dedicated
residential use in non-residential zoned
property ($3.50/$1,000 residential rate
versus $12.40/$1,000 commercial rate)
Exemptions – review of exemption claims,
limit on charitable purposes exemption
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Miki Okumura
[email protected]
808-547-5758
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Michael J. O’Malley
[email protected]
808-547-5836
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