Boston Tax Partners Karl Fryzel and Chris Flanagan Quoted in Law360 on Pass-Through Businesses and Potential Restructuring After Passage of Tax Cuts and Jobs Act

Boston’s Karl Fryzel, Co-Chair of Locke Lord’s Tax Department, and Tax Partner Chris Flanagan, Chair of the Firm’s Business Transactions Practice Group, commented on how some pass-through businesses are holding off on restructuring that might take advantage of the reduced rates given the absence of guidance from the IRS after the passage of the Tax Cuts and Jobs Act. Commenting on implementing structures that need to be put in place in advance of such guidance, Flanagan said, “It’s easier and safer to go the pass-through route for now because it’s always available to turn into a corporation once we get more guidance. But if you become a corporation now, and then we get guidance that makes that the wrong answer, that’s hard to unwind tax-efficiently.”

Fryzel said others are weighing other considerations when choosing their business structure, which includes a possible resurgence of the accumulated earnings tax, which penalizes corporations for the unreasonable retention of profits as determined by the IRS and that “you can’t just accumulate earnings in a corporation without a reasonable need of the business for those earnings, which you can get called upon to prove.”

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