Property for Services Part 4: Selling Your RIA Firm

in Fractional CFO, Tax Planning
Elevate CPA Group
Property for Services Part 4: Selling Your RIA Firm - Elevate CPA Group

Property for Services Series: Part 4 of 5

Why is IRS Section 83, property transferred in connection with the performance of services, so important for our RIA clients? It is a central issue when selling your RIA firm and succession planning. Succession planning is like estate planning—something business owners know is important, but don’t usually address. Succession planning is important for principals of RIA firms to recognize the value built in the firm. Often the firm is the largest asset the principal owns. Recognizing the value for the principal is crucial to long term financial security.

In general, Elevate CPA Group encounters two types of transactions in succession planning:

  • an arm’s length transaction with a third-party buyer, or
  • a sale to key employees.

When succession planning involves a sale to employees, Section 83 is something to think about. Some questions to consider are:

  1. Is the fair market value properly determined? Does it include appropriate and allowable discounts and is the key employee paying the fair market value?
  2. Are terms in the shareholder agreement, buy/sell agreement or operating agreement unintentionally placing a substantial risk of forfeiture that may cause a delay in taxation?
  3. Are options or profits interest being used to transfer ownership?
  4. Are the shares, whether bought for full market value or not, subject to vesting?

Elevate CPA Group is uniquely qualified to help RIA firms navigate succession issues. We help our clients build value, develop a successful succession strategy, understand and minimize tax issues, value the firm, educate successors and provide a strong relationship to help guide the firm to continued success.

Selling the firm you have built over years is an important part of an RIA firm’s lifecycle. Elevate CPA Group is here to help you make the process successful. If you are planning on selling your firm someday, make sure you have reliable expertise to make the process as simple as possible. If you have questions about property for services taxation, give us a call.