- people on the move
The rescission doctrine is a real-life do-over
Have you ever made a business decision and later wished you hadn’t? Do you wish you could go back and change it? Similar to a mulligan in golf, the IRS has a do-over option for you.
Under a rescission doctrine, both the company and the IRS are able to undo transactions as though they never occurred.
There are a variety of different instances that might make you want to rescind your legal documents. Termination of an S-corporation, conversion of an LLC into a corporation, sale of property, approval of stock transfers, or sale of a business are all examples of appropriate circumstances where rescission doctrines could be used. If any of these situations apply to you and you are considering the rescission doctrine, these requirements must be met:
- The rescission must be between the original parties involved.
- The rescission must return both parties to their original positions prior to the arrangement.
- The rescission must be made the same year the original transaction occurred.
Why should you take advantage of this rule? Typically, rescissions are done in the event of poor or nonexistent tax planning. It is crucial to obtain sound tax advice prior to the occurrence of an event or transaction. In the real world, however, the IRS recognizes that oversights and mistakes may be made to give rise to unwanted and adverse tax consequences. The rescission doctrine functions as a safety net in the event that proper due diligence did not occur.
Properly communicating with your CPA firm is not only a smart practice when contemplating major transactions, but also can eliminate the need for having to use a rescission doctrine.
Don’t beat yourself up over unwanted transactions. If you are eligible, take full advantage of this legal tax mulligan.