Acquisition funding - tax consequences

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February 24, 2024

by a searcher from Charles Sturt University in New Jersey, USA

US searchers - Has anybody had to fund the acquisition by liquidating stocks held in their investment account? Is there a way to get around incurring capital gains tax liability upon liquidation? Like a 1031 exchange type option or something?

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Reply by a professional
from University of Miami in New York, NY, USA
Ruchik - you may be referring to "Rollover as Business Start-up ("ROBS")." A ROBS is an arrangement in which prospective business owners use their retirement funds to pay for new business start-up costs. While not considered an abusive tax avoidance transaction, they can be questionable because they may solely benefit one individual – the individual who rolls over his or her existing retirement funds to the ROBS plan in a tax-free transaction.

This is possible, but it is tax sensative and the IRS has various compliance checklists you would have to adhere to. Check this out (not legal advice, but just pointing you in the right direction): https://www.irs.gov/pub/irs-tege/robs_guidelines.pdf

I have been a transactional and ultra high net worth tax lawyer for twenty years. Feel free to contact me if you would like to discuss: redacted or###-###-#### .
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Reply by a searcher
from University of Texas at Austin in Houston, TX, USA
I'd also be curious on what others have done.

Many 401Ks allow you to borrow up to 50% of your balance / up to some amount and require repayment in 5 years.

I've also heard of people doing a ROBS; rolling over their IRA or 401K into a new 401K plan created by the acquiring entity, which then purchases stock in the company.

But it sounds like you are talking about personal stock investment accounts. I haven't heard of further tax reductions other than holding positions over 1 year.
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