Income Tax Receivable Agreement

While this tax protection will generate additional cash flows from revenues, government procurement has traditionally not attributed this attribute to the appreciation of the share price. This may be partly due to the traditional valuation of companies on the basis of upstream tax revenues. In addition, shareholders have generally not identified the value of the reduction in profits and profits caused by the amortization of enhanced assets. Based on the example above, if C Corp generated $10 million in revenue, offset 100% by depreciation, C Corp`s profits and profits would be nil. Therefore, if C Corp paid its shareholders the $10 million generated by the transactions, it would be a return on investment and not a taxable dividend at the shareholder level. Indeed, the Up-C structure means that the company`s integrated profits are subject to only one tax, unlike when the partnership simply converts to C Corp, as shown above. As noted above, CCorp assumes TRA responsibility for future payments required by the TRA. This responsibility must be paid to former shareholders, as C Corp receives the benefits of the actual tax savings from the introduction of the gradation. As a result, C Corp conducts an income tax return, with or without a step calculation, to determine the TRA liability currently payable to former partners. Since THE TRA is part of the initial acquisition of the partnership interests of the former partners, this payment represents an additional purchase price of the company`s interest. When this payment is made, an additional step is taken.

In fact, there is a level of progressive payments. The additional step is depreciated over the remaining years of the initial purchase transaction. If .B a TRA payment related to the value is made one year after the initial transaction, the amortization period of the additional revaluation is 14 years. Traditionally, legacy partners obtain super-voting shares in the new C Corp public and therefore retain control of the old and C Corp businesses. Therefore, booking for accounting purposes is not covered by accounting purchasing rules and there is no leap for accounting purposes. This inherent difference between the accounting asset base and the tax value base creates a significantly deferred tax asset. An assessment of future income is required to determine whether there is sufficient revenue to take advantage of this deferred tax asset. This analysis may indicate that an assessment allowance is required in relation to the deferred tax payable. The Tax Debt Agreement (TRA) is a contract between former shareholders who sold their partners and the new public company C Corp, which acquired the shares in order to share the value of the tax benefits resulting from the gradual implementation of the sale of the shares.

Typically, senior partners receive 85% of the tax savings from the sale and C Corp retains 15% of the value. A TRA liability is covered by C Corp for the 85% tax savings to be paid to former partners. As part of the Up-C transaction, a new C Corp is incorporated as a public market capital raising vehicle. C Corp uses IPO funds to acquire some or all of the shares of the former partners in the partnership. To the extent that the partnership has selected IRCs in accordance with section 754, C Corp benefits from an increase in the company`s wealth tax base, in accordance with CRI s.743 (b). Often, the most important asset that is amplified is good business will. From a tax point of view, the good incorporation is an investment value of CRI S. 197 that is depreciated over a 15-year period. So if the goodwill stage is $150 million, C Corp. will be able to insure $10 million in tax revenue each year over the next 15 years.