11) While there is no standard set of attributes, certain characteristics distinguish closely held corporations
from their publicly traded counterparts.
For the purposes of determining material participation, individuals, estates and trusts are treated differently from closely held corporations
and personal service corporations.
To operate under these relaxed rules, some states require that the corporation both qualify as a closely held corporation
(typically fewer than 50 shareholders) and elect "statutory close corporate" status.
The IRS has typically applied this asset approach when a closely held corporation
functions as a holding company and earnings are relatively low in comparison to the fair market value of the underlying assets.
In third-party transfers involving closely held corporations
, the scenario changes.
The first step in the process of valuing a stock interest in a closely held corporation
is valuing the entire business.
Establishing a reasonable compensation level is a not a science, especially when it includes a contingent compensation arrangement in a closely held corporation
These increasingly popular restrictive agreements can be valuable tools to closely held corporations
that seek to protect shareholder ownership interests and increase the probability of achieving a long and successful operating life.
Further, transactions involving closely held corporations
and their controlling shareholders demand close scrutiny.
The personal holding company (PHC) tax is a punitive tax imposed on certain closely held corporations
that retain excess PHC income.
A trend is emerging in reasonable-compensation decisions that should please executives of closely held corporations
and clear up some of the murkiness that has clouded this area for years.
Third, the seven-factor test invites the Tax Court to set itself up as a super-personnel department for closely held corporations
, a role unsuitable for courts.