“From a tax perspective, the owner is typically taxed currently on the cash received. If structured properly, a tax deferral is achieved on the stock rolled over into the newly capitalized company. This strategy should be especially appealing to business owners who are considering cashing out in the near future and are domiciled in jurisdictions where tax rates are either scheduled to increase in the near future (such as Japan, at the time of writing) or viewed as likely to increase in the near future (such as the United States, at the time of writing).”
Why leveraged recapitalization is especially appealing where tax rates are scheduled to increase rather than decrease? If tax rates are scheduled to increase, business owner should sell his business outright to avoid future increase in tax rate, rather than defer to sell his remaining shares which will be subject to higher tax rate.
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