Tuesday, October 16, 2007

Bottom Line - Structured Sales - Part IV

This is the fourth part in a series designed to give some food for thought when considering different tax saving strategies.

When utilizing a structured sale, there are several different parties involved. The company handling the proceeds from the sale and effectively making payments back to you over time is the “Assignment Company”.

Your buyer actually never revokes his obligation to make the payments to you, but assigns this obligation to the assignment company. There is not a whole lot of risk in doing this the way it is set up, but some buyers may not be on board with the concept.

The assignment companies currently offering the structured sales are located offshore in Barbados. There are many favorable tax breaks for offshore companies, but should the need arise to ever enter into a legal action with an offshore company, it is a bit more complicated than if the company were in the USA. They are subject to different tax laws and it is a bit more involved to litigate outside the US.

The insurance company who will hold your funds in a single premium immediate annuity and pay you somewhere between a fixed 3-4% interest rate is a large, well established company such as Prudential or Allstate. Due to current requirements for all insurance companies, there is little risk that you will not be repaid as promised.

Once the payments begin, there is little to be done but receive them until the obligation has been repaid. Canceling is not really an option without incurring major loss.

If you have a large amount of depreciation recapture, or a large mortgage, there will be a significant tax obligation due on sale. These numbers need to be addressed prior to implementation so you keep enough out of the transaction to pay the tax bill and don’t get stuck owing money you must take from savings or worse yet have to take out a loan to pay back.

You do get the chance to spread out the remainder of capital gains tax due over time, the risk is low and the fees are minimal. You have to weigh this against what you will owe right away, and the fact that you are locked in for many years at a low interest rate and little option to change the terms or cancel without substantial penalties.

As always, if you have a good understanding of what is involved, you are better able to choose what suits your needs. Make sure you always deal with an experienced party who will make sure the transaction is set up properly and follows all the IRS guidelines and reporting procedures.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at