Financial and Estate Planning: Careful review of a poorly structured stock purchase provides financial relief for a client and his corporation.

A new client approached Penny Banks, tax partner in the Frisco office, three years after purchasing stock in a C-corporation. He needed his personal and corporate tax returns prepared. When Penny reviewed the purchase agreement, she discovered several red flags: for the past 3 years, the client, who was in a 31% tax bracket, had to take salary from the corporation in excess of $150,000 each year just to pay the debt on the stock purchase; as well as another $100,000 to live in a resort area. The corporation was operating at a loss in order to pay this exorbitant salary.

Working with the seller, Penny was able to restructure the stock purchase so that the corporation purchased the remaining stock, paid a reasonable salary to her client, and was able to use up the net operating losses generated in the first 3 years so that no tax was paid. The client's income dropped to the 15% bracket; both corporation and client gained by the restructure; and the original seller of the stock was in the same position as he had always been. A win-win situation for all parties.