Do you own a tax time bomb?

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Several Idaho truck stops operated by Indian tribes have stopped collecting the state’s fuel tax on their fuel sales, citing a recent U.S. Supreme Court decision. Although a tribal tax is collected instead, the payment of this tax cannot be credited against Idaho tax due to the International Fuel Tax Agreement; carriers buying fuel at these stops still will owe state tax. For a list of retailers not collecting Idaho state tax, visit the Idaho Tax Commission website at this site.

Internal Revenue Service has issued a revised Form 2290 – Heavy Highway Vehicle Use Tax Return – for 2006, for payment of the 2007 federal heavy vehicle use tax. Instructions for Form 2290 can be found at www.irs.gov/pub/irs-pdf/i2290.pdf. A copy of the form is available at this site.

UPS Inc.’s strong first-quarter results, including cash flow of $1.9 billion, have put the company in a good position to make “an extremely large acquisition if it makes strategic sense for the company,” Chief Financial Officer Scott Davis said in late April. Last August, UPS completed the acquisition of Overnite Corp. for about $1.25 billion, renaming the operation UPS Freight.

Billings Transportation Group, Lexington, N.C., blamed the relocation of textile manufacturing to overseas factories for its cessation of operations in late April. The 84-year-old business, which employed 225 workers, sold some of its operations to San Francisco-based Aero Logistics.

Real estate usually is a wonderful investment. It’s especially enticing for trucking executives when they can invest in properties, such as offices, shops, terminals or yards, that their own trucking businesses could rent. The appreciation on real estate often exceeds the return on the business itself.

But the lure of a real estate bargain often leads business owners to jump into a deal without conducting any upfront tax planning. Because of this, they give little thought to how the real estate should be owned. So they let the corporation buy it. The result, sadly, often is a real estate time bomb – and a hidden one at that. Any parcel of real estate owned inside a corporation – whether it’s a “C” or “S” corporation – incurs certain tax pitfalls that everyone should understand and work to avoid.

It all starts with the purchase. Insist that both your attorney and CPA research the proper form of ownership with you and that they work together in your best long-term interests. Avoid the corporate form of real-estate ownership altogether. Instead, consider the limited liability company, if that’s allowed in your state.

Why say no to a corporation? For starters, it may cause a massive double tax in future years, especially if it’s owned inside a C corporation. But even S corps can incur an extra tax or incur a tax when you finally want to split off your real estate, such as at the sale of your business or when you want to distribute the property. The beneficial “step-up” in tax basis that occurs on the owner’s death is lost in corporate ownership.

If that weren’t reason enough, like-kind (Section 1031) tax-free exchanges become a challenge if all shareholders don’t go along. But also looming in this world of multimillion-dollar jury awards is that the equity in a property inside a corporation disappears along with the business if that property isn’t owned in a possibly untouchable external ownership entity. Such an outcome would defeat your initial reason for diversifying, wouldn’t it?

In most states, LLCs are the favored form of ownership for real estate. This gives you the favorable tax treatment of partnerships along with the asset protection benefits of corporations. LLCs also work well with family estate planning strategies.

But what if you’re already stuck with the dreaded corporate ownership problem? You have options, so consult your CPA and attorney. The first step is a tax projection of the present tax situation, comparing current market value to the adjusted basis (cost minus depreciation claimed), and a brief forecast of future appreciation values. Then you can evaluate the cost-benefit analysis of possible solutions.

Remember: Tax consequences are but one consideration in the structure of a real estate deal. Given your particular circumstances, it’s possible that the cure for an unfortunate tax situation is worse than the disease. But for many, there are strategies to keep future appreciation of the property out of the extra-tax category. These include distributing the real estate as a dividend, possible LLCs inside the company that can be distributed later, special business sales strategies – including stock sales, like-kind exchanges and installment sales – and charitable planning. Each strategy is sophisticated and should be done only under the guidance of experienced tax professionals.

But none of these strategies beat upfront avoidance, so taking extra time at the beginning can keep the real estate time bomb from ruining your retirement.

“The Perils of Holding Real Estate in a Corporation,” by Mark Minassian, published at About.com; website


Nassau reports high repo volume
Repossessions and liquidations of tractor-trailer trucks nationwide have been high for the past five quarters, but repossessed trucks are finding buyers quickly, reports Nassau Asset Management, an asset management firm serving the equipment finance industry. Nassau President Edward Castagna cites high fuel costs as a major factor, but he believes that the upswing reflects a positive trend: industry growth over the past few years. There are more financed vehicles on the road as the industry rebounded from the 2001 downturn, and more vehicles naturally means more repossessions and liquidations.

Trucks that Nassau has repossessed or liquidated are reselling quickly, Castagna says. “We feel the rush to change out fleets before year end may leave a surplus of used trucks on the secondary market. We intend to monitor resale speed and price levels for the remainder of 2006.”