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In order to facilitate Mr. Andrews’ eventual sole ownership of
the dealership, as well as to provide Mr. Andrews immediately with
some degree of control over the dealership’s assets, Mr. Andrews’
attorney, Charles Egerton recommended that the dealership’s assets
be held by a limited partnership. Mr. Egerton advised Mr. Andrews
that operating the dealership through a limited partnership would
afford Mr. Andrews the following advantages: (1) Limited liability
protection; (2) the ability to make disproportionate distributions;
(3) a single level of taxation; (4) a lower Federal tax rate; (5)
the ability to avoid Florida’s State income tax on his distributive
share of profits; and (6) the ability to exercise greater control
over the potential sale or liquidation of partnership assets. Mr.
Coggin agreed to have the dealership’s assets held by a limited
partnership.
Coggin-Andrews Partnership
On December 14, 1990, Imports entered into an agreement with
Andrews Automotive Corp. (Andrews Automotive), an S corporation
solely owned by Mr. Andrews, to form the Coggin-Andrews
partnership. The partnership was created through a series of
related transactions. First, Mr. Andrews redeemed all of his stock
in Imports, receiving in exchange a promissory note in the amount
of $573,207 (the note). (Immediately prior thereto, and in
contemplation of the redemption, Imports made a $1,750,000
distribution to petitioner.) Then, Mr. Andrews contributed both
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