SAVE THOU$ANDS

In the past, Sellers who wanted to “cash out” their appreciated business or real estate had to choose between paying a huge tax bill and deferring the recognition of gain and related taxes. Deferring the capital gains tax by using a 1031 Exchange, Tenants in Common or Charitable Remainder Trust might be a satisfactory option for some, but not for others. While these options may defer capital gains, they either perpetuate the “like-kind property” investment cycle, are expensive, restrictive, or have unwanted financial risk and scrutiny. Additionally, the once popular Private Annuity Trust was removed from the marketplace by the Treasury Department and Internal Revenue Service on October 17, 2006, declaring it an exchange of property for an annuity contact. (See Industry Updates-page four, blue colored text)

IT’S YOUR MONEY, DON’T GIVE IT AWAY!

The Structured Sale is however, a unique type of Installment Sale with a bonafide Seller and Buyer, created by Agreement or Addendum and is done so pursuant to Internal Revenue Code 453, Installment Sales. Once established and prior to closing, the Buyer arranges for the purchase of an annuity contract securing the agreed to installment payments.

Sellers of a business, real estate or other property can now complete a “cash sale” while enjoying the tax-deferred advantages of an installment sale, but without the financial risk of unsecured payments! The Structured Sale is available in all fifty states and should be considered by any Seller who desires tax-deferral. Even Sellers domiciled in no tax states should consider the many advantages of this unique installment sale program.

Sale Year Taxes are Conserved ~ Pre-tax Dollars are redirected into installment payments

This unique type of installment sale allows title to the property to be transferred to the Buyer at the close of escrow!

Easy to install, there are only a few short form documents to be completed prior to closing. The annuity is purchased from a highly rated life insurance company and there is no out-of-pocket cost to the Seller or Buyer.

Based upon a well documented, codified process, The Structured Sale is similar to the one used in the settlement of personal injury claims. Commonly referred to as a Structured Settlement, the recorded use of an Assignment of Obligation involving personal injury claims exceeds 25 years. (IRC Section 130 (c) (d) (*See Cunningham v. Commissioner, 44 T.C. 103 (1965), acq., 1966-2 C.B. 4; Revenue Ruling 75-457 Amplified 82-122)

The Structured Sale utilizes the same Assignment of Obligation process that has been used by several insurance carriers in other types of non-personal injury periodic payment obligations for well over a decade. As the substituted obligor for the Buyer, the assignment company purchases and becomes the owner of the annuity contract and responsible for the schedule of installment payments. (*See Cunningham v. Commissioner, 44 T.C. 103 (1965), acq., 1966-2 C.B. 4; Revenue Ruling 75-457 Amplified 82-122)

The Seller decides how much cash to retain at closing and the Buyer pays a lump sum amount (balance of cash not taken by the Seller at closing) to fund specific installment payments identified in the Agreement or Addendum. The funds that would have gone to taxes in the sale year are conserved, remaining with the balance of cash not taken by the Seller. It’s this conservation and redirection of the sale year taxes otherwise payable, which gives the Structured Sale a distinct advantage over taking cash and investing the sale amount, net after-tax.

A BETTER USE OF YOUR PRE-TAX SALE DOLLARS~GENERATE MORE INCOME

Depending upon the Seller’s tax situation and the payout selected, the guaranteed gain in payments received by the Seller can offset a large portion, and in some cases, all of the taxes paid; putting more income in the Seller’s pocket, net after-tax. Actual results will vary by Seller and state.

(See Cash vs. The Structured Sale)

For a no cost or obligation illustration call (888) 480-0067.

Alternative to a 1031 Exchange~No Replacement Property Headaches
No out-of-pocket or ongoing costs or expenses -None!

Only $100,000 Minimum with no set maximum!

Sooner or later, taxes have to be paid,
but WHEN and HOW is NOW up to the Seller!

NOT YOUR TYPICAL ANNUITY

When most people think of an annuity, it is usually of a type that accumulates funds over time, pays a single stream of income payments, or is responsive to the stock market. The “Structured Sale Annuity” utilizes both immediate and deferred payments that are fixed and determinable. However, they are not affected by changes in the stock market. Flexible in its design, the Seller can take advantage of:

• Payments that can begin within one month or be deferred up to 20 years.
  
• Payments made for a specific period of time, or for a lifetime.
  
• A single lump sum or multiple streams of payments are allowed; each can vary in amount, timing of payment and duration; satisfying multiple future needs.
  
• Guaranteed future lump sum payments and annual cost of living adjustments; to help offset inflation.
  
• Payments made monthly, quarterly, semi-annually, annually or in any combination when multiple streams of payments are utilized.
  
• The Structured Sale must be established prior to closing; once closed, changes to the schedule of installment payments are prohibited.

THE SALE

The Structured Sale is a cash sale with two components; cash at the close of escrow and future installment payments. By Agreement or Addendum, the all cash sale contract (including borrow funds) is modified so that the amount of cash to be paid to the Seller at closing is identified and separated from the schedule(s) of future installment payments.

The Seller decides how much cash keep at the time of sale and by agreement with the Buyer, has installment payments made over time according to a predetermined schedule. The Buyer’s lump sum amount of cash not taken by the Seller is wired by the closing agent to the Assignment Company and represents the discounted cost of the installment payments.

THE ASSIGNMENT OF OBLIGATION

The Buyer directs the closing agent to wire the lump sum amount to the assignment company which will purchase and own the annuity contract. The assignment company, by separate agreement with the Buyer, becomes the substituted obligor for the installment payments. Once received by the assignment company, the funds are verified, documented and then wired to the life insurance company, usually within about three days. The annuity contract is purchased and issued in accordance with the schedule of installment payments. (*See Cunningham v. Commissioner, 44 T.C. 103 (1965), acq., 1966-2 C.B. 4; Revenue Ruling 75-457 Amplified 82-122)

THE SELLER NOW HAS FINANCIAL SECURITY
INDEPENDENT OF THE BUYER!

The Sale Agreement or the Addendum to the Sale Agreement and the Assignment of Obligation contain the schedule(s) of installment payments. However only those installment payments identified in the Assignment of Obligation will be assigned. Thus, if a Seller agrees to a large down payment with a Seller’s carry-back note, there would be two separate schedules (A and B) of installment payments. Both would be stated in the Sale Agreement or Addendum to the Sale Agreement; but only schedule A, representing those installment payments to be assigned, would be stated in the Assignment of Obligation document.

TITLE TO ASSET(S) IS TRANSFERRED AT THE CLOSE OF ESCROW, COMPLETING THE STRUCTURED SALE!

THERE IS NO COST TO THE BUYER!

The Structured Sale offers each Seller the ability to create their own schedule of installment payments, tailored to their specific needs. Whether it is a single lump sum, payments for a few years or even a lifetime, the Structured Sale is for many, the best, no cost and hassle free answer to just deferring taxes!

DISCUSS THE STRUCTURED SALE PROCESS WITH THE BUYER AS THEY ARE PART OF THE PROCESS THEIR COOPERATION AND WRITTEN AFFIRMATION IS MANDATORY.

Sellers and Buyers must consult with their tax and or legal counsel before concluding the Structured Sale.

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Have a question? Please call:
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Andrew Hull

The information contained in deferthetax.com may not be construed as or relied upon as tax or legal advice.