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Expert Analysis

The Hidden Tax Trap In S Corp. Sales

Law360, New York (October 12, 2011, 2:05 PM EDT) -- The sale of an S corporation with the filing of a 338(h)(10) election is a transaction structure with which most deal lawyers are reasonably comfortable. There is a hidden tax trap, however, that can arise when the purchase price includes delayed payments, principally earn-out payments of a significant (or unspecified) amount compared to the cash payments made at closing. In that situation, the sellers can find themselves paying tax on the cash portion of the purchase price more than once for the year of the sale. The following example illustrates the potential magnitude of this issue....

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