June 15, 2012
Previously published on Summer 2012
With the current 15% Federal Capital Gains rate scheduled to expire on December 31, 2012 and the unpredictable outcomes of the November elections, ESOP Selling Shareholders should be considering the related tax implications. Very often, many of these Selling Shareholders hold promissory notes due to them from ESOP companies or, sometimes, the ESOP itself. These notes typically carry an interest rate higher than that of bank loans and are payable over several years. Furthermore, many of these Selling Shareholders have historically elected installment sale treatment for tax purposes, meaning that payments received after 2012 risk being taxed at a substantially higher rate as Federal Capital Gains tax rates are scheduled to increase dramatically in January 2013 unless legislation is passed in the interim. Kaufman & Canoles can work with you to develop a re-financing strategy that could result in: - Substantially lowering the ESOP company’s cost of capital.
- Lowering the risk of increased capital gains rates by bringing forward principal payments of seller notes into 2012.
- Asset diversification for the Selling Shareholder.
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