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16 J. St. Tax'n 33 (1997-1998)
Safeguarding Your Passive Investment Holding Company against State Attacks

handle is hein.journals/jrnsttax16 and id is 229 raw text is: Safeguarding Your Passive Investment Holding Company Against State Attacks MICHAL C. BEAM Michal C. Beam, CPA is with Roller and Ksicinski, SC. He specializes in the taxation of closely held businesses. S etting up a passive investment holding company (PIHC) in a tax haven state can save a great deal of tax dollars for companies large enough to justify the additional costs associated with maintaining a PIHC. PIHCs can also cause a great deal of headaches when under attack by a state department of revenue. Most experts will agree that the key to a viable PIHC is designing it, from the ground up, to withstand a revenue department attack. This article is intended to outline some of the procedures necessary to build a PIHC that can withstand an attack by a state department of revenue and, possibly, to avoid an attack without spending a great deal of money in the process. The keys to building a successful PIHC are having a valid business pur- pose, avoiding nexus in the parent or affiliate operating company's domicile state, having adequate transfer pricing between the PIHC and the parent or affiliate, and avoiding unitary classification. Each of these topics is briefly discussed, and some methods are recommended to obtained the intended results. CREATING AND MAINTAINING AVALID BUSINESS PURPOSE Undoubtedly the most critical ingredient of a PIHC is having a valid business purpose other than tax avoidance. Without a valid business purpose a PIHC is a sitting duck, waiting to be blown out of the water

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