Loan Deal After Business Sale Triggers Capital Gains, Court Says

A tax planning strategy that allows for stock sale proceeds to be reinvested without being immediately subject to capital gains is supplanted if taxpayers use that qualified replacement property as collateral for a loan, the US Tax Court ruled Tuesday.

Edward Berman and his cousin Annie Berman each owned half of a company, which they converted from an S Corporation to an Employee Stock Ownership Plan in 2002. Each person sold $4.15 million of that stock to an ESOP in 2002, realizing a gain of $4.12 million each, less their bases. On their 2003 tax returns, they elected to defer ...