The is wonderful news for baby boomers who are beginning the process of selling their S-Corporation shares to their employees.
In a private letter ruling, IRS has issued favorable tax rulings for a proposed transaction to transfer ownership of an S corporation from the two equal retiring co-owners to key employees. Specifically, IRS concluded that profit on a redemption of the owners' shares by the company for notes will be taxed to them as capital gain spread out over several years, the company will have no gain on the redemption and may deduct interest paid on the notes, and the notes won't be a prohibited second class of stock.
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