Our CPA warns that the interest charges on deferred tax liability under Section 453A will eat up our savings if we exceed the five million threshold. How do we structure multiple entities or split the sale of assets to legally avoid this penalty?

Question

Tyler Smith · Accepted Answer

To manage the five million dollar interest charge threshold under Section 453A, you must look at how your business and assets are owned. This interest charge applies per taxpayer, not per business entity. If your business is owned by a single S-corporation or LLC with a sole owner, you will hit that threshold quickly on a large transaction.

One practical approach is to analyze your asset mix before you go to market. You can separate your operating business from your real estate or your proprietary technology assets. If these assets are held in separate legal entities with different ownership structures, such as a family trust or multiple partners, each taxpayer may be eligible for their own five million dollar threshold. This effectively multiplies your limit.

Another strategy is to structure the transaction as a partial asset sale combined with a stock redemption. Under this structure, the company redeems a portion of your stock for cash at close, while the buyer purchases the remaining assets or shares via an installment note.

You must align this tax strategy with your V/TO, ensuring your long-term wealth goals do not conflict with the transaction timeline. Use your weekly Level 10 Meeting to coordinate your legal and tax advisors. Make this a priority Rock for your leadership team at least two quarters before you sign an LOI. Do not let tax planning become a last-minute scramble that kills the deal.