Tax Planning Never Ends

The story is a familiar one. A national election is held electing a new president. Election outcomes in the Senate result in leadership change in that branch of the government as well. Soon the implications of various public policy changes are reflected in a major rewrite of the Internal Revenue Code. As always, there are winners and losers when the tax law changes.

With the backdrop of these major tax law changes upon them, a family patriarch and members of the next generation of family leaders met to consider how the family’s many business and investment activities would be impacted by these law changes. For many years, the family had operated in multiple businesses that were generating significant cash flow as well as high reportable taxable income. Capitalizing upon the prior existing tax law, the family had been previously advised on how to structure the tax-advantaged acquisition of significant amounts of distressed real estate assets available for purchase in the midst of a regional economic slump which had greatly depressed asset values at that time. Deductions related to the use of accelerated depreciation on these assets had previously been available to offset the taxable income generated by the family’s other business activities.

Unfortunately for the family, changes in the tax law would suspend the use of these real estate losses for many years into the future. As a result, the family’s current cash tax liability would greatly increase. Subsequent to a careful analysis of the new law, a tax-advantaged restructuring of the family’s many business entities was implemented, saving the family millions of dollars in current year cash tax out-of-pocket costs.