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1 Minneapolis Saint Paul Chicago Milwaukee Types of Transactions ► Asset Purchase ► Stock (or Membership Interest) Purchase ► Mergers / Exchanges and other.

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Presentation on theme: "1 Minneapolis Saint Paul Chicago Milwaukee Types of Transactions ► Asset Purchase ► Stock (or Membership Interest) Purchase ► Mergers / Exchanges and other."— Presentation transcript:

1 1 Minneapolis Saint Paul Chicago Milwaukee Types of Transactions ► Asset Purchase ► Stock (or Membership Interest) Purchase ► Mergers / Exchanges and other Tax-Free Reorganizations

2 2 Minneapolis Saint Paul Chicago Milwaukee Taxable Transactions Asset Transactions ► Allocation of Purchase Price ► Accounts Receivable ► Seller: ordinary income ► Buyer: carry at allocated value ► Inventory ► Seller: ordinary income ► Buyer: carry at allocated value

3 3 Minneapolis Saint Paul Chicago Milwaukee Taxable Transactions Asset Transactions ► Allocation of Purchase Price ► Depreciable Assets (Personal Property) ► Seller: ordinary income to the extent of depreciation recapture ► Buyer: carry at allocated value and depreciate (fresh start) ► Real Estate ► Land ► Seller: capital gain ► Buyer: carry at allocated value ► Building ► Seller: recapture / capital gain ► Buyer: depreciate

4 4 Minneapolis Saint Paul Chicago Milwaukee Taxable Transactions Asset Transactions ►Allocation of Purchase Price ►Goodwill ►Seller: capital gain ►Buyer: capitalize and amortize over 15 years ►Non-Compete Payments ►Seller: ordinary income ►Buyer: capitalize and amortize over 15 years ►Consulting Payments ►Seller: ordinary income subject to FICA ►Buyer: current deduction

5 5 Minneapolis Saint Paul Chicago Milwaukee Taxable Transactions Asset Transactions ► Installment Sales ► A portion of the Seller’s gain can be deferred until such time as the Seller receives the principal payments under the promissory notes. ► A portion of each payment received by the Seller will be treated in part as (i) a nontaxable recovery of the Seller’s basis in the property and (ii) a gain equal to the amount of the payment multiplied by the gross profit percentage on the sale. ► Seller must receive at least one payment in a year after the close of the tax year in which the disposition occurs.

6 6 Minneapolis Saint Paul Chicago Milwaukee Personal Goodwill Why do you care? ► Personal Goodwill Generally ► May be owned/property of shareholders, members or partners ► Sold separately from business assets or equity ► Can result in favorable tax treatment is C corporation is involved ► NEED FACTS TO SUPPORT ITS EXISTENCE

7 7 Minneapolis Saint Paul Chicago Milwaukee Personal Goodwill Profile ► C Corporation ► Closely Held ► Prerequisite ► Identity of business and owner intertwined ► Technical or professional businesses ► Value comes from owners education, reputation and experience ► Few customers or suppliers ► Relationships are key ► Vendor deals add value

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