Corporate & Tax

Tax

Cohen & Grigsby advises clients on a wide array of federal, state, local and international transactional and tax planning matters, and defends many of them in tax examinations by taxing authorities. Our key concentrations are:

Compensation Planning

Many of our clients – C corporations, S corporations, limited partnerships, and limited liability companies — ask us to design appropriate equity-based compensation plans. We structure flexible stock option plans, allowing for the grant of both “qualified” and “nonqualified” stock options, for newly-formed as well as later-stage C corporations. Typically, these plans provide for non-uniform vesting features, including those that were performance-based, as well as differing acceleration features.

We also create “unit option plans” for limited partnerships and limited liability companies. These entities’ tax status requires the architecture of their equity based compensation plans to differ significantly from standard stock option plans. We design such plans to produce favorable results, and to install several “phantom stock” plans which provide employees with economic benefits similar to those of stock option plans and unit option plans while avoiding some of their inherent accounting and legal complexities.

Like-Kind Exchanges

We structure complex tax-free, like-kind exchange transactions. A recent such structure accommodated a client that intended to transfer title to an existing building in exchange for a building to be constructed. Our tax planning advice resulted in that client entering into a “reverse exchange” or delaying the “tax sale” of the existing building (but transferred occupancy) until such time as the newly-constructed building was substantially complete. The tax planning on these transactions resulted in significant savings.

International Planning

We advise clients regarding the most appropriate business structures for their worldwide operations, successfully providing them with operational flexibility, access to favorable income tax treaty networks and the ability to consolidate their worldwide income in the U.S. Our advice has enabled clients to:

  • Utilize excess cash flow in the markets where investment was needed
  • Employ intellectual property to create cash flow from, and deductible expenses in, high tax jurisdictions
  • Manage transfer pricing adjustment risks
  • Manage import/export duty costs

IRS Tax Audits / Pennsylvania Use Tax Matters

We routinely advise clients in connection with IRS audits. In a recent matter, the IRS made assessments against our client totaling approximately $2 million regarding the write-off of loans to and investment in a limited partnership. The IRS asserted that the loan was not worthless when it was written off and that our client was not entitled to a bad debt deduction and, further that the cancellation of the loan produced forgiveness of debt income to the partnership. Simply, the IRS was trying to both eliminate our client’s deduction and increase its income.

Our Tax Group attorneys were able to convince the IRS that the “loan” was actually an equity investment that had been abandoned, and, as an equity investment, its abandonment did not generate forgiveness of debt income for the partnership or its partners. We were also able to convince the IRS that our client was entitled to a deduction on the write-off on the investment. Based on our efforts, the IRS agreed to settle the case for five percent of its original assessment.

In another recent matter, the Pennsylvania Department of Revenue assessed Pennsylvania use tax against our client (a Pennsylvania corporation) totaling approximately $480,000. This assessment arose out of our client’s sole shareholder’s out-of-state purchase of goods which were drop-shipped to our client for use in Pennsylvania and that same shareholder’s performance out-of-state of certain administrative functions for our client. The Department of Revenue asserted that the shareholder’s purchase of goods and their subsequent transfer to our client constituted an integrated transaction for Pennsylvania use tax purposes. The Department also asserted that the administrative services performed by the shareholder for our client constituted taxable “computer-related services.”

We were able to convince the Department that the shareholder’s out-of-state purchase of goods and the subsequent transfer of such goods to our client constituted separate transactions including: a purchase by the shareholder of goods (subject to out-of-state sales tax) and a capital contribution of goods to our client. We were also able to convince the Department that the majority of the administrative services were not “computer-related services” and, in any case, such services had been performed gratuitously. Based on our efforts, the Department agreed to settle this case for 12 percent of its original assessment.