A member of a Family Limited Partnership (FLP) wanted to sell his ownership position for $4 million. The FLP owns a C-corporation that holds a portfolio of commercial buildings valued at several millions of dollars. The only option to fund the buyout was for the corporation to sell one or more of its properties held in its investment portfolio.
Two properties were submitted for analysis. Building 1 was valued at $5,040,000 and Building 2 at just under $3 million, totaling $7.9 million. The analysis concluded that without proper planning, the corporation would be nearly $900,000 short of the $4 million needed to purchase the partner’s share after paying the sale costs and nearly $4.5 million in taxes.
Only Building 1 would need to be sold and the corporation would receive about $4.8 million tax-free at close of escrow. Furthermore, all corporate taxes are eliminated, the FLP member is paid the $4 million buyout price, his personal taxes are deferred for decades, and the corporation enjoys a tax-free surplus of $488,000.