Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Excerpt

This is the first of three chapters analyzing various alternative courses of action which owners of closely held businesses may take in preference to selling out to other companies. The extent to which the tax structure actually places the owners of such businesses under pressure to sell out for tax reasons can be evaluated only in relation to these alternatives. For the most part they are designed to soften the impact of the estate tax on the owners of closely held businesses -- either by reducing the size of this tax or by placing the owner in a better position to pay it.

Perhaps the most obvious way for an individual to avoid the full impact of the estate tax is for him to give away a large part of his property before his death, ordinarily to members of his family. If these gifts are made in such a way as to remove the donated property from the donor's taxable estate, large tax savings can be made. True, the property so given away will be subject to the gift tax, but this tax ordinarily will be much smaller in amount than the estate taxes which are thereby avoided.

Despite this opportunity for large tax savings the amount of property transferred by gift rather than at death is far less than an examination of the tax incentives would lead one to expect. The reason is that there are many practical and legal difficulties which often make the attempt to save taxes by resort to large inter-vivos gifts unattractive or ineffective; these difficulties are likely to be especially great for the owner-managers of closely held companies.

The size of the tax savings which can be made by transferring property by gift and the nature of the difficulties restricting such transfers are discussed later in this chapter. These . . .

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