Gold and Coal
| || || |
| || || |
| || ||
You might be familiar
with a "1031 exchange":
When a property is sold and you have the right to re-invest the same amount back into a replacement like-kind property and consequently do not have to pay capital gain taxes on the sale of the relinquished property. One snag is if you owe money on the relinquished property and you do not either want to owe money on your new place, you will have to pay taxes on that portion that was paid back to the bank.
Now if you own property in a C-Corporation (or other similarly taxed entity) and want to sell it for a profit over $5MM, you may face similar challenges. There is a company that works similar to a §1031 exchange agent for C-Corporations, saving you between 20% and 50% of the potential state and federal tax bite. After you find a buyer for your assets, they work as a principal buying the corporation from you at the same closing table for part of the tax amount you would otherwise owe. So let's say you receive $10MM for your company and you would have to pay $4MM in taxes. The exchange agent takes the money from the buyer and gives you $7MM tax free, so you have an extra million dollars to put into your pocket you would have otherwise owed to the tax collector.
The exchange now has $3MM in cash and your company without the assets, while you take a trip to the Bahamas and sit on the beach. The exchange agent will now mirror the financial picture you had with your company. If you had $2MM in loans, they will take a $2MM loan, then add $5MM of their own money to make it the $10MM you had sold your company for. They take the $10MM and re-invest them into commercial properties.
Over time they will convert your former C-Corporation into a single-taxed S-Corporation. After ten years the corporate taxes are diminished and they have built up equity via amortization and appreciation in the replacement property.
Of course it can get a little bit more complicated than in our example.
Residual assets and/or operations owned in the company may be "spun-out" or distributed to one or more shareholders and the "seller-friendly" approach provides certain flexibility that can be very helpful in resolving difficult situations. Their acquisition of the C-corporation will not interfere or delay the sale of the Property nor do they limit the asset sales price or other terms negotiated. They keep the transaction simple and typiy use non-adversarial local counsel, oftentimes referred to them by the selling shareholders' attorney, to facilitate their acquisitions. The exchange agent will also reimburse the selling shareholders up to $25,000 for their professional fees, so that they net the premium paid.
Other than C corporations, this specialized exchange agent may likely have an acquisition interest in the following entities if they are selling real property held for investment:
S corporations that within the last nine years have converted from a C corporation;
LLCs that for tax purposes file as a C corporation (foreigners almost always own U.S. property this way for estate & other reasons);
LLCs, partnerships or other wholly owned subsidiaries of C corporations;
Any foreign corporations; and
Business or complex trusts that pay severable tax;
If you are selling or planning to sell property owned in your C-Corporation or other similar entity, send me an email with the name of your corporation, and I will put you in touch with the exchange agent I am working with!
| || ||