A buy-sell agreement is essential for business owners planning for unexpected changes. Whether due to retirement, disability, or the passing of a partner, these agreements lay out the process for transferring ownership. However, understanding the tax implications involved is just as important as drafting the agreement itself. Redemption vs. Cross-Purchase Buy-sell agreements generally take two forms: redemption agreements and cross-purchase agreements . In redemption agreements, the business buys back the exiting owner’s shares. Cross-purchase agreements allow remaining shareholders to purchase those shares directly. Life insurance policies often fund these agreements, ensuring the necessary resources are available. However, you must be aware of the tax implications of these transactions. Navigating the ‘Transfer-for-Value’ Rule Life insurance proceeds are typically excluded AVOID MISTAKES IN YOUR BUY-SELL AGREEMENT
from taxable income, making them a reliable funding source for buy-sell agreements. However, the “transfer-for-value” rule can complicate matters. This rule applies if a life insurance policy is transferred to an unqualified party, rendering the proceeds taxable. Working with a skilled attorney can help ensure the agreement is structured to avoid this costly mistake. The Importance of Proper Valuation Fair market value is a cornerstone of any buy- sell agreement. The Internal Revenue Code (IRC) Section 2703 establishes guidelines for valuing the exiting owner’s shares, ensuring the terms are fair and align with market standards. The appraiser must disregard the agreement’s terms when determining value unless specific exceptions apply. Agreements that meet the following criteria may qualify for these exceptions:
Meeting these requirements protects the agreement’s integrity and avoids regulatory issues. Why Expert Guidance Matters
Just one mistake in a buy-sell agreement can lead to significant tax liabilities, disputes among stakeholders, or invalid agreements. When you work with an experienced attorney, you can create agreements that are legally sound, tax-efficient, and tailored to your unique circumstances. Contact Us to Secure Your Business’s Future At Merlino & Gonzalez, we understand the importance of planning for the unexpected. Our experienced team can help you draft a buy-sell agreement that protects your business, honors the intentions of all parties, and complies with tax regulations. Call 718-698-2200 to schedule a consultation today to discuss your business succession planning needs. Together, we can ensure your business is positioned for long‑term success.
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The agreement is a bona fide business agreement.
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It is not used to transfer assets between family members for less than fair value. The terms resemble an “arm’s-length transaction.”
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Ginger-Glazed Mahi Mahi Michele’s Recipe Corner
INSPIRED BY ALLRECIPES.COM
INGREDIENTS
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3 tbsp honey
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3 cloves garlic, minced 4 (6-oz) mahi mahi fillets Salt and pepper to taste
3 tbsp soy sauce
3 tbsp balsamic vinegar
2 tbsp olive oil
2 tbsp vegetable oil
2 tsp grated fresh ginger root
Cooked brown rice, for serving
DIRECTIONS
1. In a shallow bowl, mix honey, soy sauce, balsamic vinegar, olive oil, ginger, and garlic. 2. Season fish fillets with salt and pepper, then place them skin-side down in the marinade. Cover and refrigerate for 25 minutes. 3. Add vegetable oil to a large skillet over medium-high heat. Remove fish fillets and add to skillet, reserving marinade. Fry fish for 4–5 minutes on each side, turning only once, until fish flakes easily with a fork. Remove fillets to a serving platter and keep warm. 4. Pour the reserved marinade into the skillet. Simmer over medium heat until reduced to a glaze. Spoon glaze over fish and serve over brown rice.
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