Step 1
Decide to Sell Tax Free
Consider Lazear
for your 1042 Tax Solution
As the most sophisticated tax strategists in the Employee Stock Ownership Plan (ESOP) community, we have developed solutions that save our clients millions of dollars as compared to other solutions.
Lazear’s proprietary 1042 Solutions will save selling shareholders between $2 million and $3.3 million per $10 million of Taxable Gain (depending on state tax rates).
What you need to know about Section 1042
What is 1042?
What is 1042?
Internal Revenue Code Section 1042 enables shareholders to sell to an ESOP to defer/eliminate their tax on the gain associated with the sale of their company.
The federal and state tax savings are substantial: 20% Federal, plus between 0% and 13.3% State Tax, depending on your state’s income tax rate.
Why does Section 1042 exist?
Why does Section 1042 exist?
The U.S. Congress implemented Section 1042 to encourage business owners to sell their companies to their employees. Congress wants people to save for retirement and ~65% of Americans have insufficient retirement savings.
What is QRP?
What is QRP?
In order to “rollover” the Taxable Gain, the Seller must purchase Qualified Replacement Property (QRP). Any domestic US stock or bond qualifies as QRP.
The Challenge of Financing the Purchase of QRP
In a typical ESOP, the Seller’s cash at closing is ~25% of the Taxable Gain. It’s very difficult to purchase QRP equal to 100% of the Gain when the Seller’s cash at closing is only ~25% of the purchase price.
Floating Rate Notes (FRNs):
an Imperfect QRP Financing Solution
To finance the purchase of your QRP, Banks will loan up to 90% of the FRNs face value. Using leverage enables the purchase of Floating Rate Notes equal to 100% of the Taxable Gain.
The FRN loan will require annual interest expense on the 90% loan and will continue for the rest of the Seller’s life.
In order to approve the loan the bank will require the Seller’s personal guarantee.
Key Components of 1042 Tax Strategies:
The Lazear Difference
Lazear's Proprietary
1042 Solution
Lazear’s proprietary 1042 Solution eliminates interest expense and provides other significant economic benefits.
Business Case ($100MM Example):
Taxes saved=$25MM
Equity in Lazear’s 1042
Solution=$15MM
Even if the equity in the 1042 Strategy disappeared, the Seller will have a net tax savings of $10MM
Book a complimentary call with a Lazear 1042 Tax Strategist
Lazear’s team of tax attorneys and CPAs will guide you through the complexities of establishing a 1042 Tax Solution. Our consultative partnership model unites our team with yours to build a unique strategy that achieves your goals.
Lazear's Expertise
Our approach combines decades of expertise in finance, taxation and ownership transition with a deep understanding of the ESOP process to create a personalized 1042 Solution that achieves your goals. Click here to learn more about Lazear’s Proprietary 1042 Solution.
Step 2
Understand Code Section 1042 and “QRP” Options
Step 3
Compare Lazear's Strategy & Floating Rate Notes “FRN”
Step 4
Learn How Lazear’s Proprietary Solution Saves You Money
Each and every one of our customers receives personalised assistance from our dedicated support team.
Book a Time with our Team
Ready to explore the benefits of 1042 Tax Solutions for your business? Schedule a consultation with our experienced team at Lazear today. Let us partner with you to develop a customized ownership transition plan that maximizes tax efficiency, preserves wealth, and fosters a legacy of employee ownership. Contact us now to take the first step towards a prosperous future for your business and your employees.
