transaction is intended to resolve family disagreements or allow different branches of the family to focus on specific farming or ranching activities, this should be clearly outlined in corporate records and communications with the IRS. Review and Carefully Structure the Business Operations: Determine whether the agricultural activities being separated qualify as an active trade or business. It may be necessary to adjust the business model or more clearly identify the two separate operations to satisfy the IRS’ criteria for active involvement. Consider Asset Allocation: Carefully plan the distribution of assets between the corporations. The allocation must support the business purpose, ensure both corporations can operate independently while meeting the active trade or business requirement, and follow current ownership percentages in effectuating the split. Avoid Stock Transfers: Plan ahead for any stock transfers that may need to occur before or after the split. Transfers of a shareholder’s stock before or after a split can affect qualification for a Section 355 split. It is important these transactions are examined carefully and effectuated at the appropriate times. Obtain a PLR, Opinion Letter, or Transaction Insurance: To mitigate risks and ensure the transaction meets IRS standards, consider obtaining a Private Letter Ruling (PLR) from the IRS, an opinion letter from a qualified tax attorney, or transaction insurance. These measures can provide clarity and protection, helping to confirm that the Section 355 transaction will be treated as intended for tax purposes. Conclusion For farm and ranch corporations, a Section 355 transaction can provide a tax-efficient solution to separate business interests while maintaining the advantages of corporate ownership. However, careful planning is essential to ensure the transaction qualifies for Section 355 treatment. Professionals advising agricultural clients should pay close attention to the active trade or business requirement and ensure the transaction is backed by a valid corporate business purpose. Rising land prices, low relative cash flow, and changes in tax law over the last two decades have made the transition of these family farm and ranch operations increasingly difficult. Nate Patterson is an attorney in the Estate, Business Succession, and Tax Department at Koley Jessen. Patterson works closely with each client and their team of advisors to implement estate, business succession, and wealth and tax planning to ensure each client accomplishes their personal and financial objectives and leaves a lasting legacy. With hands-on experience operating and managing a family farm, he also provides “boots on the ground” expertise to agriculture clients and family businesses on planning matters specific to the ag industry. He can be reached at nathan.patterson@koleyjessen.com. Nicholas Bjornson is an attorney in the Tax Department at Koley Jessen. His experience in dealing with tax issues and implementing business strategies provides members of the agricultural community efficient solutions to achieve optimal tax benefits and economic consequences. He also represents taxpayers in disputes with the Internal Revenue Service, the Nebraska Department of Revenue, and other state and local taxing authorities. He can be reached at nicholas.bjornson@koleyjessen.com. CLASSIFIED AD Nebraska Practices for Sale: Gross Shown: NEW $195K Bellevue, NE EA Tax Practice. NEW $185K North Central NE CPA Practice. For more information Call (800) 397-0249 or visit www.APS.net THINKING OF SELLING? Accounting Practice Sales is the leading marketer of accounting and tax practices in North America. To learn more about our risk-free & confidential services, call Trent Holmes at (800) 397-0249 or email trent@apsholmesgroup.com. 13 nescpa.org
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