Discussion:Foreign Income Shift with Future Payment

I am doing some work for a client who owns a foreign C-corp. The client, an American citizen, would like to sell the company to his close friend and attorney, a citizen of the foreign country in which the C-corp is located, for a reasonable profit. The friend would then sell the company at a much higher price and, because he's a foreign citizen, pay a substantially reduced tax bill. The friend would pay back the American over time, keeping a small fee for himself of course.

I'm having a difficult time tracking down any specific primary authority, e.g., a Code section or a Reg, stating that this sort of transaction is disallowed. Any assistance you all could provide would be much appreciated (help a newbie out!). Thank you very much.

The substance of the transaction that is described above (i.e., the "straight path") appears to be that the American citizen has sold the stock of his corporation at the higher price and asked this attorney to act on his behalf and hold some of his cash for a while. The U.S. would tax the American citizen up front based on the much higher price.

Since he is selling stock in a foreign corporation, you should make sure you look at section 1248 (all or a portion of the gain may be ordinary income).