Cash from acquisition...how can I avoid taxes?

Question

My company, in which I'm a shareholder, recently got acquired by a publicly held company. As part of the deal, in exchange for my restricted shares I get some stock in the acquiring company and cash. Most of the cash is going to be delivered in a lump sum with some money to follow after sitting in an escrow for a few months. I'm a bit concerned about what this influx of cash (about a third of my annual salary) will mean from a tax perspective. Is there a way to minimize the bite that Uncle Sam takes or am I pretty much at the mercy of the IRS? Any advice would be greatly appreciated?

Answer 1

You are at the mercy of the regulations. That does not mean the entire amount is a taxable gain. You should seek good legal/audit advice because you want to minimize the gain (as much as legally possible) and make sure it gets taxed at the correct rate.

Sounds like you are now one of the rich who just keep getting richer.

Answer 2

The answer you are looking for depends on several things:

First, is this a regular (i.e. "C" corporation), an "S" corporation, or
an LLC? I will assume that this is a regular "C" corporation.

Second, how did you acquire your restricted shares?

Third, was the acquisiton of your company a taxable transaction?

If your restricted shares were simply a purchase:
(a) unrelated to your employment or related to your employment services and you made a Section 83(b) election AND
(b) you held the restricted shares for more than 12 months AND (c) the acquisition of your company was a taxable transaction, then you are looking at a federal long-term taxable at 15% plus whatever your state tax rate is. Otherwise you are looking at ordinary employment income taxed at ordinary rates.

You need to determine if the acquisiton of your company is a taxable transaction. Check the acquisition agreement. Generally, when more than 20% of the consideration for the purchase of a company is "boot" (i.e. cash), the transaction becomes taxable (but see link below), and you compute and report your entire gain on your tax return. If the acquisition is NOT a taxable transaction, you will compute your gain and then report gain only up to the amount of cash received. The residual gain is deferred until you sell the stock of the public company you receive.

You may be able to defer gain related to the amount of cash in escrow if you do not have constructive receipt of the cash (i.e. there is a substantial restriction on you receiving the cash) and if receipt of the cash falls into a subsequent year. You need to check on the terms of the escrow. http://www.toolkit.cch.com/text/P11_2454.asp
http://www.irs.gov/pub/irs-pdf/p537.pdf

If the sale of your company is a taxable sale, you might be able to deferred some gain under the installment sales rule, however this is unlikely. Check out the IRS publication below.
http://www.irs.gov/pub/irs-pdf/p537.pdf

Answer 3

You still don't owe any tax on selling that car. Your basis in a gift is the lesser of the donor's basis (what they paid for it) or the fair market value when they gave it to you. Even if you sold it immediately there would be no taxable profit. Yes, some cheats get by for a while, but most are caught in the end. Once the penalties and interest have been added to the tax, it's not unusual for the debt to be several times what it would have been had they paid the taxes on time.

Answer 4

Most of the payment (cash or otherwise) is probably not taxable at this time. Your tax basis (cost) in the original stock less the cash received should be your tax basis in the new stock. You would pay taxes on the gain when you sell the stock in the new company.

Answer 5

Move to Honduras

Answer 6

roll it over to an IRA