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Forms of Transactions Non-Tax Drivers Asset SaleOwnership Sale 1. Limit Successor Liability1. Usually Avoids Contract Assignment Consents 2. Selected Business Assets2. Regulatory Issues
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Monetizing a C-Corporation:The Value Trap
Lloyd GrissingerManaging Director
CBIZ MHM, LLC
2
Happy Days are Here!!!
Stock Sale
Proceeds $ 15,000,000
Basis 5,000,000
Gain 10,000,000
Individual Fed & TN Tax Rate 20%
Fed and State Tax 2,000,000
After Tax Proceeds $ 13,000,000
Forms of TransactionsNon-Tax Drivers
Asset Sale Ownership Sale1. Limit Successor Liability 1. Usually Avoids Contract Assignment
Consents
2. Selected Business Assets 2. Regulatory Issues
Ownership Sale -- Stock Asset Sale
Seller
Generally, capital gain recognized on
sale of stock.
Avoids double taxation if a C-Corp.
Buyer
Inherits preexisting liabilities.
Tax basis in assets and the holding period do not change except for
§338.
Seller
Double taxation results where the assets sold
are held by a C-Corporation
Buyer
Basis in assets equal to the amount paid for
the assets. Holding period starts over.
Do not inherit any preexisting liabilities.
Gain recognized and character depends on the type of the asset
sold (inventory or FEE – ordinary, goodwill –
capital gain).
5
Problem
Asset Sale
Proceeds $ 15,000,000
Basis 5,000,000
Gain 10,000,000
Corporate Fed & TN Tax Rate 38.3%
Fed and State Tax 3,829,000
Cash available for distribution 11,171,000
Individual Fed & TN Tax Rate 25.2%
Fed and State Tax on Dividend 2,815,092
After Tax Proceeds $ 8,355,908
Proceeds Lost to Tax 31% $ 4,644,092
Stock Sale
Proceeds $ 15,000,000
Basis 5,000,000
Gain 10,000,000
Individual Fed & TN Tax Rate 20%
Fed and State Tax 2,000,000
After Tax Proceeds $ 13,000,000
6
Sale of Personal Goodwill
• C-Corporation or S-Corporation with C-Corp. E&P• Industries: Sales/Distribution/Service• Competition Has Low Barrier to Entry• NO preexisting Covenant Not to Compete• Owners created Personal Goodwill
– Reputation, Expertise, Relationships with Customers, etc..• TN Resident
7
SolutionPersonal Goodwill
Proceeds $ 9,000,000
Basis -
Gain 9,000,000
Individual Fed & TN Tax Rate 20%
Fed and State Tax 1,800,000
After Tax Proceeds $ 7,200,000
Asset Sale
Proceeds $ 6,000,000
Basis 5,000,000
Gain 1,000,000
Corporate Fed & TN Tax Rate 38.3%
Fed and State Tax 382,900
Cash available for distribution 5,617,100
Individual Fed & TN Tax Rate 25.2%
Fed and State Tax on Dividend 1,415,509
After Tax Proceeds $ 4,201,591
Net Proceeds from Bifurcated Sale $ 11,401,591
Net Proceeds from Asset Sale 8,355,908
Tax Savings $ 3,045,683
8
Manufacturing ExampleAsset Sale
Proceeds $ 15,000,000
Basis 5,000,000
Gain 10,000,000
Corporate Fed & TN Tax Rate 38.3%
Fed and State Tax 3,829,000
Cash available for distribution 11,171,000
Individual Fed & TN Tax Rate 25.2%
Fed and State Tax on Dividend 2,815,092
After Tax Proceeds $ 8,355,908
Tax Savings $ 1,015,228
BifurcatedAsset Sale
$ 12,000,000
5,000,000
7,000,000
38.3%
2,680,300
9,319,700
25.2%
2,348,564
$ 6,971,136
Personal Goodwill
Proceeds $ 3,000,000
Basis
-
Gain 3,000,000
Individual Fed & TN Tax Rate 20%
Fed and State Tax
600,000
After Tax Proceeds $ 2,400,000
After Tax Proceeds $ 9,371,136
9
Bonus
Bonus Personal Goodwill
Payment $ 1,000,000 $ 1,000,000
Fed Rate 39.6% 20.0%
Tax 396,000 200,000
Tax Savings $ 196,000
![Attracts and holds heavy objects with 1000 · 16 MHM-A1612 25 MHM-A2512 32 MHM-A3212 50 MHM-A5012 Pad Bore size [mm] Part number 16 MHM-A1613 25 MHM-A2513 32 MHM-A3213 50 MHM-A5013](https://img.pdfslide.net/doc/110x75/5f0548b87e708231d4123317/attracts-and-holds-heavy-objects-with-1000-16-mhm-a1612-25-mhm-a2512-32-mhm-a3212.jpg)
