- 17 -
BC's basis in the note 122.67
FMV of the note 40.00
Capital loss 82.67
Net Gain on sale of FP note 12.67
Net Capital loss 70.00
After the sale of the note, BC's tax basis in the
Partnership is zero and the Partnership still has
127.28 in cash (160-32.72).
Step 7:
In April 1991, the Partnership will be terminated.
There cannot have been any agreements, negotiations, or
understandings of any kind among the Partners or their
representatives regarding the possible liquidation of
the Partnership or the assets to be distributed to each
respective Partner upon termination and liquidation of
the Partnership or the transactions described in Steps
4 and 5. Prior to termination, 55% of the cash in the
Partnership will be contributed to Newco, a wholly-
owned subsidiary of the Partnership. Upon termination
of the Partnership, the Newco stock will be distributed
to BC and the remaining cash to FP.
Risks Involved
[Redacted material deleted.] Merrill Lynch did assure
us that their fee would not be due if the tax law
changed prior to implementation.
Cost Involved:
1. Merrill Lynch's fee is 5-10% of the tax savings.
Assuming a capital loss of $82 million, the tax savings
would be around $28 million and a 10% fee on such savings
results in a fee of $2.8 million. This 10% fee is
negotiable. Also, need to clarify whether the fee is on the
gross or net capital loss generated.
2. Legal fees for BC and operating expenses of the
Partnership which would be paid by BC, would run about
$400,000 - $500,000.
3. Compensation fees to the FP. Merrill Lynch talked
in terms of 40-75 basis points on the FP's equity
investment.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011