The Value of a Tax Minimization Analysis

How do you reap the maximum return on selling a business you’ve spent your life building? A Tax Minimization Analysis (TMA) is the answer. A TMA analyzes a multitude of factors that play a vital role in the outcome of selling a business. When executed properly, a TMA will allow a seller to understand the financial breakdown on every level of a merger, acquisition or business succession. Additionally, the TMA will provide an accurate calculation taking into account all transaction factors and variables that affect the cash a seller obtains at closing and post-closing.

As many know, an M&A transaction can be overwhelming with the multitude of variables that drastically influence the outcome. Those variables include, but are certainly not limited to: the overall structure of the transaction, the asset/stock basis of the selling company, ownership configurations, real estate involvement, multiple entity involvement, liabilities paid at closing, purchase price adjustments, earn-outs, consulting fees, recaptured depreciation, and the federal, state and local tax impact. When all variables are understood early in the transaction, your counsel is best equipped to strategically use such variables to obtain an outcome that not only protects a seller legally, but minimizes their tax burden to the fullest extent possible. After all, we did not invest our lives into a business to give thirty to fifty percent of the closing proceeds to Uncle Sam when it’s sold!

A TMA can not only pay for itself through the tax savings it will discover, but potentially pay for the merger and acquisition (M&A) team you engage for your transaction. For example, you’re selling a business in an industry that deals with complex licensing or regulation (transportation, sand & gravel, chemicals, etc.) and the Buyer seeks an asset sale for the benefits of immediate depreciation. Through proper execution of a TMA, your counsel can analyze and determine the best structure of the transaction, whether it be an asset, stock or in this case a potential 338(h)(10) sale. The TMA will calculate the tax effect of each sale to determine what structure best suits the seller from a tax standpoint. Under this example, the TMA may determine the 338(h)10 will best overcome the complexities of assigning licenses or permits while also providing the paramount tax outcome for not only the seller, but in this example the buyer too.