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Interest in a Closely Held Business [Internal Revenue]
Understanding Interest in a Closely Held Business [Internal Revenue]: A Comprehensive Guide
Definition & Meaning
An interest in a closely held business refers to a stake in a business entity that is not publicly traded. This term typically encompasses three main types of interests:
An ownership interest in a sole proprietorship.
A partnership interest in a partnership with specific criteria regarding capital interest and partner count.
Corporate stock in a closely held corporation, again with criteria related to stock value and shareholder count.
This definition is important for estate tax purposes, as these interests can significantly affect the valuation of a decedent's gross estate.
Table of content
Legal Use & context
This term is primarily used in estate and gift tax law. It is relevant in determining the value of a decedent's estate for tax calculations, especially when the estate includes interests in businesses that are not publicly traded. Understanding this term is crucial for estate planning and for individuals involved in the administration of estates.
Users may find it beneficial to utilize legal templates provided by US Legal Forms to assist in managing the documentation and procedures related to these interests.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: John owns a small bakery as a sole proprietor. Upon his passing, the value of the bakery will be included in his estate for tax purposes.
Example 2: Sarah is a partner in a law firm with nine other partners. Since her partnership interest meets the criteria, it will be considered when calculating her estate's value. (hypothetical example)
Relevant laws & statutes
The primary regulation governing interests in closely held businesses for estate tax purposes is found in the Internal Revenue Code, specifically under 26 CFR 20.6166A-2. This regulation outlines the criteria for determining what constitutes an interest in a closely held business.
Comparison with related terms
Term
Definition
Key Differences
Closely Held Business
A business entity with a limited number of shareholders.
Focuses specifically on ownership structure.
Publicly Traded Company
A company whose shares are available for purchase on public stock exchanges.
Publicly traded companies are not included in this definition.
Common misunderstandings
What to do if this term applies to you
If you have an interest in a closely held business and are concerned about estate taxes, consider the following steps:
Assess the value of your business interest and how it fits into your overall estate.
Consult with a legal professional to understand the implications for your estate planning.
Explore US Legal Forms for templates that can assist you in managing your estate planning documents.
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