How do tax considerations show up in negotiation? I

think one of the most obvious areas involves purchase price allocation, especially if the seller is an S corporation, a limited liability treated as a partnership or whatnot.

From a seller's perspective, the... purchase price can be treated as either ordinary income with the tax rate federally as high as 37% or as capital gain with the tax rate of 20%.

So from the seller's standpoint, you want to put as much towards intangible assets such as goodwill in order to maximize the amount taxed at the 20% rate.

The buyer, on the other hand, would like to have as much of the purchase price allocated towards equipment because they can deduct that immediately in certain scenarios as opposed to the 15-year amortization period for goodwill and other intangibles.

So that's one area of potential conflict.

The mistake we see too many times is that an agreement, call it a stock agreement that somebody pulls off a shelf, looks to allocate the purchase price for equipment based upon its net book value for financial reporting purposes rather than tax purposes.

And what does a smart tax planning ultimately do for a transaction?