Get your C corp in order

By John Ettorre

So-called C corporations have increasingly become the vehicle of choice for private business owners who are attracted by their lower tax rates and superior financial flexibility. But tax specialists are also issuing a few cautions.

They note that in cases where there is more than one owner involved, the partners should have a buy-sell agreement in place. It should specify the procedure for and the terms under which partners or their estates could buy into or out of the partnership in the event of one partner’s death.

Then there’s the issue of improperly drafted C corps. As Jones, Day, Reavis & Pogue tax attorney Christopher Jenks recently noted at a seminar for entrepreneurs, the Internal Revenue Service is taking a harder look at whether some C corps are merely tax-avoidance schemes for individuals. “There are several provisions of the tax code designed to catch people who are using C corps as a dodge,” Jenks said. While they haven’t been invoked much in recent years, “a lot of tax professionals are concerned they could be soon.”