This questionnaire is designed to help you pinpoint planning opportunities for your family business and organize your goals. It can also be of use when answered with the assistance of your attorney, accountant and/or financial planner.
C Corporations
1. Is compensation to shareholder/employees reasonable in light of the services rendered and the success of the company? Is any compensation currently being paid for past services? Do the corporate minutes reflect this fact?
2. Are retained earnings in excess of reasonably foreseeable business needs? Do retained earnings exist for the current year?
3. Does the company have a small enough number of nonfamily employees that a medical reimbursement plan could be useful?
4. Is it likely that the company will sell its assets to an unrelated party in the foreseeable future?
5. Does the company have average annual gross receipts in excess of $5 million? Does the company report taxable income using the cash method of accounting? Is this a Personal Service Corporation?
6. If desired, could the company elect S corporation status without negative impact?
a. Does the company maintain its inventories using the LIFO (last-in, first-out) method?
b. If the company is a service organization using the cash method, are there significant receivables?
c. Is the company in the middle of a “spread period” after a change of accounting method?
d. Is the company reporting any income using the installment method?
e. Does the company have C corporation retained earnings and nonactive income in excess of 25% of gross receipts?
f. Does the company have any shareholders who do not qualify to be S corporation shareholders?
g. Does the company have a significant net operating loss or tax credit carryover?
h. Has the company been an S corporation within the last five years?
7. Does the company pay the alternative minimum tax?
8. Does the company have more than one shareholder? If yes:
a. Is there a buy/sell agreement in place?
b. Is it a redemption or cross-purchase agreement?
c. Is there life insurance on the parties to the agreement? Who owns the policy?
9. Has the company changed its fiscal year within the last six years? If yes:
a. Is the company’s fiscal year different from that of its shareholders?
b. Does the company take advantage of deferral techniques on income paid to shareholders?
10. Is the company a member of a controlled group? If yes:
a. Are tax brackets apportioned among the members?
b. Are qualified plan coverage rules for the entire group met?
c. Are any of the members who have employees not participating in the plan or a comparable plan?
S Corporations
1. Are there 75 or more shareholders?
2. Are any of the shareholders trusts? If yes:
a. Are they qualified subchapter S trusts or electing small business trusts or grantor trusts?
b. Have all appropriate elections been filed in a timely manner?
c. Has the IRS sent back an acknowledgment letter regarding these elections?
3. Are distributions made to shareholders on a pro-rata basis?
4. Do any shareholders have preferences over other shareholders on liquidation or distribution?
5. If family members work in the business, are they paid reasonable salaries?
6. Does anyone own restricted stock? If so, did they file a section 83(b) election?
7. Does the company maintain a cafeteria plan? If so, are shareholders and their families able to participate in the plan?
8. Does the company receive at least 25% of its gross income in any two consecutive month period of the year?
9. Does the company have a fiscal year end other than Dec. 31? Are tax deposits being made with the IRS?
10. Answer “C Corporation” questions 6, 8 and 10.
11. Does the company have any subsidiary corporations? If yes, are any of them owned 100%? Was a qualified subchapter S subsidiary election filed on time?
Partnerships and Limited Liability Companies (LLCs)
1. Does the company maintain a cafeteria plan? Does it allow partners/members to participate?
2. Does the company fiscal year coincide with its majority shareholder’s tax year?
3. Is the company a vehicle for gifts of ownership to family members? If yes:
a. Does the agreement restrict transferability of interests?
b. Does the agreement prevent someone undesirable from becoming an owner?
c. Does the agreement provide for a buyout on death, disability or retirement?
4. If a partnership, is a corporate or LLC general partner used? If a partner is a C corporation, does it have gross receipts in excess of $5 million?
Qualified Plans and Fringe and Welfare Benefit Plans
1. Does the company maintain a qualified plan? If so, are there more than one? Are there any frozen plans?
2. Does every plan that has assets at the end of a year file Form 5500?
3. Is there a deferred compensation plan for executives and key people only? Has the Department of Labor been notified of the plan in a timely fashion to negate the need for Form 5500?
4. Does the company maintain a cafeteria plan including a premium only or premium conversion plan? If so, does the plan file a Form 5500?
5. Is the owner or principal owner generally older than his average employee? If so, does the company have either a cross-tested profit sharing plan or a defined benefit plan?
6. Is life insurance a desirable benefit to provide to the company’s employees? If so, has the company considered a group term life insurance plan? Has the company considered a death-benefit-only welfare benefit plan?
General Planning
1. Does the tax law of the company’s place of business favor any type of business entity over another?
2. Does the company own intellectual property like patents and other intangibles? If so, have you considered using multiple companies? Also, consider which state would be best for you regarding franchise taxes.
3. Does the company hold any assets such as refunds that need to be returned to the customer (or client or patient) or reported to the state of the customer’s residence? Is there an amnesty program for nonfilers?
What Now? Seek the advice of your Attorney, CPA or Financial Planner who will address your concerns most effectively.