Income tax receivable agreements account for only about one in 50 I.P.O.'s backed by private equity, according to some estimates, but industry experts say they are on the rise.
The strategy, known as an income tax receivable agreement, has been quietly employed in dozens of recent offerings backed by private equity, including those involving PBF Energy, Vantiv and Dynavox.
As part of the deals, the newly public companies entered into tax receivable agreements, in which the companies promise to pay 85 percent of the tax benefits back to the selling founders In short, not only did the founders pay tax on the sale at low capital gains rate, they get a check each year from the newly public companies to thank them for doing so.
The payments at the closing of the transaction for the Trademark License Agreement, the Tax Receivable Agreement and Virgin Mobile USA's subordinated debt will be made either in cash or stock, at Sprint's option.
Sprint will pay Virgin Group approximately $50 million at closing as payment in full for net operating losses available to be utilized by Virgin Mobile USA in the future under the Tax Receivable Agreement.
You've identified ten areas to look closely to identify possibly shaky earnings: options, cash flow, inventory, sales/share, investment income, pension plans, taxes, goodwill, receivables, and off-balance sheet debt.
"My clients use a 10-tab divider set with business and personal financial statements, tax returns, accounts receivable and accounts payable aging, a short business plan, reference letters and whatever else is appropriate.
Some of your taxes: 1. Accounts Receivable Tax, 2. Building Permit Tax, 3. CDL License Tax, 4. Cigarette Tax, 5. Corporate Income Tax, 6. Dog License Tax/Fee, 7. Excise Taxes, 8. Federal Income Tax, 9. Federal Unemployment Tax (FUTA), 10.
Set Up Your Record-keeping System A good accountant can advise you on the best record-keeping software for your business, and help you set up a system for keeping track of payables, receivables, sales tax, payroll, employee benefits plans, and so forth.
Still, "credit risks," "pre-tax losses," and "troubled receivables" might be a bit over the heads of little Janey and Jimmy.
Or tax collecting, or the accounts receivable function, or building inspections or animal control?
