Date Published: Mar 2009 San Francisco Business Times
What is a great deal? It reminds me of the old legal maxim “You can name your price if I can name the terms.” Most people focus on “how much do I have to pay” or “how much do I receive.” Negotiating the details of a transaction can make a tremendous difference in the amount of taxes incurred or saved. Not understanding the effect of the taxes can greatly affect the “true” price.
Why would taxes make a difference? It gets back to the terms. Most purchases or sales focus on price first and then terms length of payment, interest, balloon payments, payment dates, inventory value, goodwill, and perhaps the details of what is being transferred, etc. So what about taxes? The savvier the dealmaker the sweeter the deal and nothing is sweeter then little or no tax for my clients.
Over my 30 plus years of practicing tax law, I have negotiated for many clients, but one deal stands out to me as an example of the benefit of negotiating taxes. I was hired by one of my clients to negotiate the terms of a business that he was buying. The seller and his attorney were fixated on the price.
My client, the buyer, asked me to negotiate the terms that would affect his taxes, his general attorney had already negotiated the price and the general terms. When I arrived at the meeting the seller and his general attorney greeted me. The seller was a very determined person and before he could properly greet me, looked me in the eye and said, “I don’t care how many fancy lawyers are brought in, I’m not budging from the price.” I smiled and extended my hand and let him know I was not here to negotiate the price. He would have his price! I simply wanted to discuss the tax portion of the deal.
With that, he and his general attorney relaxed and we sat down to work on completing the deal.
The result of that meeting provided my client with all of the tax benefits, leaving the seller with all of the tax detriments. My client was very happy and the other side may never know how much the insisting on price and ignoring the tax effects really cost him. The seller received his price but netted far less in his account than if he had lowered the price and kept some of the tax benefits.
This concept works in so many aspects of business and should be considered before any negotiations begin. Use the tax code to your advantage and make your deal better.
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