AEP Business Succession Planning Flashcards
6 cards from real AEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 AEP Business Succession Planning flashcards as text
Which IRC section provides favorable installment sale treatment when a business owner sells to an ESOP, potentially allowing deferral of capital gains tax?
Answer: IRC §1042
IRC §1042 allows a C-corporation owner who sells qualifying stock to an ESOP to defer capital gains tax by reinvesting proceeds in qualified replacement property.
When valuing a closely held business for estate or gift tax purposes, which three approaches are commonly used under IRS Revenue Ruling 59-60?
Answer: Income, market, and asset (cost) approaches
Revenue Ruling 59-60 directs appraisers to consider the income approach (capitalized earnings), market approach (comparable transactions/multiples), and asset approach (net asset value) when valuing closely held stock.
A deferred compensation plan funded by a business for a key owner-employee who has an estate planning concern should typically be structured as a:
Answer: Non-qualified deferred compensation plan to control timing of inclusion in the taxable estate
A non-qualified deferred compensation plan allows flexible structuring to defer income recognition and coordinate estate inclusion, though it remains subject to creditor claims as an unfunded obligation.
In a redemption (entity-purchase) buy-sell agreement, which party owns the life insurance policies on the owners?
Answer: The business entity itself
In a redemption agreement, the business entity owns and is the beneficiary of policies on each owner's life, using the death proceeds to redeem the deceased owner's interest.
Which estate planning technique allows a parent to 'freeze' the value of a business interest in their estate while transferring future appreciation to the next generation income-tax free?
Answer: Installment sale to an IDGT
An installment sale of business interest to an IDGT freezes the seller's estate at the note value while all future appreciation accrues income-tax free inside the grantor trust for the next generation.
IRC §303 provides an important business succession benefit by allowing a partial stock redemption from a closely held corporation to be treated as:
Answer: A capital gain or loss rather than a dividend
IRC §303 allows a corporation to redeem stock from a deceased shareholder's estate to pay estate taxes and funeral/administration expenses with the redemption taxed as capital gain rather than a dividend.