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Accounting and Financial Planning for Law FirmsFeaturesLaw Firm FinancialsLaw Firm ManagementLegislationTax

Tax Implications of Budget Reconciliation Bill

By Lawrence L. Bell
February 01, 2022

Part I of this article (in last month's issue) identified the proposed changes in partnership tax law as proposed by the Biden Administration and implemented by a Democratic Congress. The proposed changes are intended to simplify the tax law and permit the IRS to be able to audit and collect taxes in a more effective and efficient fashion. We showed how using benefit laws that have been on the books for over 30 years we can provide a seamless platform for owners of pass thru entities to reduce income estate and transfer taxes. This installment discusses how to use this platform to fund not only for death benefits but also for alternatives to deferred compensation for business and estate planning purposes for pass-through entities.

Life insurance on owners, key and top hat employees can be a powerful tool. It can generate tax-exempt proceeds that can use to help protect themselves against the death of key personnel while providing critical liquidity to the company if it must buy back shares from a deceased owner's estate. This can be especially important for pass thru entities, LLCs, LLPs, and S corporations, which often have a unique interest in controlling the makeup of their shareholders/owners to ensure continued qualification under Subchapter S.

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