Posted by JPiper on May 31, 2000 at 14:30:36:
To the extent that you receive a price (after you sold your note to yourself) in excess of your cost basis, you would pay tax as a dealer, which as you know includes self-employment tax, if you are structured as a limited partnership.
If you sell your note to one of the institutional note buyers, that obviously will trigger tax (assuming you made a profit).
So the case we are left with is the one you cite…where you do ALL the financing yourself, and do a deal with yourself (called self-dealing), and sell the note to yourself as another entity. Even if you’re doing this type of deal, it still would be best to have it take place initially in a C Corp.
But despite your persistence with this idea, I hope you’ll let me know when and if this strategy is ever audited…I’d love to hear the results when and if the IRS delves into the issue of self-dealing.
By the way, John Hyre had a recent post on this score where he suggests that you don’t have to go through all this paper shuffling to accomplish what you’re attempting to accomplish. In fact, if I recollect he specifically warned against self-dealing in that particular thread.
Hope this finds you well and doing lots of deals.