Hopson Partners with CSS, LLC
Hopson was about to owe a $400,000 tax bill. For $27,000, we gave him asset protection, reinvestment in his next deal, and new deductions.
Hopson knows land development. He also went through the 2008 credit crunch. He knows titling with partial ownership and friendly equity stripping can prevent creditors getting to assets they shouldn’t. Some of his friends lost everything when banks called loans and seized equity unjustly.
Hopson’s TD, LLC (“TD”) had a C-Corp manager and was 99% owned by him. TD owned 36% of Greymead, an apartment complex, with other partners. Greymead was selling, and Hopson faced $1 million of tax on capital gains and recapture. Hopson’s $2.4 million in old carryforward market losses still left him with $400,000 of recapture tax to pay. When the cash freed up, it was going to be in TD and exposed to general creditors. Our Double Vault℠ wealth protection strategy appealed to Hopson
We showed Hopson how, by selling us part of TD for a Note before the Greymead closing, he asset protected proceeds at closing from outside creditor seizure. As a side benefit, our Note stepped up basis in our % of TD and the property through §754. By adding wealth protection against outside creditors, 32% of taxes are wealth preserved and Hopson’s C-Corp stays in control of all funds.
Hopson’s accountants and attorney provided transactional review. They recognized that TD’s LLC agreement kept Hopson in control of the money, our ownership provided outside creditor protection, and §453(c) gives a step-up in basis for a Note while preserving wealth creation ability. Hopson’s outside creditor wealth protection, our 60+ years combined experience, and our systems to reduce personal and business risk and enhance profitability match the economic substance and bargain-sale nature of our relationship. Hopson’s lawyer made sure that we signed TD’s operating agreement, Hopson isn’t exposed to our creditors, and Hopson stays in control. Because Hopson is a wealth builder, we like that.
Because our first deal was smaller, Hopson made a 14.7x return on the $400,000 saved to reinvest We were only getting started. After our closing, we deployed our 60+ years experience to look for other ways to assist Hopson’s wealth creation, preservation and protection. Hopson had his eye on a “triple platinum” property held in another family’s C-corp. Preexisting buildings on the land were fully depreciated. The family wanted to do a §1031 exchange with challenging parameters. Their C-corp faced a 40% tax on sale. Even if §1031 was successful, the family corp was still going to lose $5,000,000 in depreciation on a new investment, costing them $2,000,000.
As part of Hopson’s business benefit, we illustrated how to eliminate the tax on sale and reinvest for all of the upside potential while letting Uncle Sam share some of the risk. Hopson was able to solve the family’s problems without §1031, defer the 40% tax indefinitely, and give them a plan for $5,000,000 in new depreciation. Hopson’s staff is learning to find new deals and leverage their time value.
We recommended that Hopson consider having TD make an arm’s length loan of $1,600,000 to another investment opportunity. Doing so would provide wealth protection against inside creditors in that investment, something that would not be possible if the funds were invested as common equity. By securing our position, this “Inside Vault” strategy gives us a first position against inside creditors of the equity investment, except when subrogated. A project that Hopson liked could give appreciation and depreciation on new property to him as manager. Hence, investment from TD of the $1.6 million as debt added another layer of asset protection to Hopson’s life’s work. As investors with small returns and lots of opportunity for future business, we are happy. And Hopson has ensured that we can honor our Note to him for the original purchase. Our position can also benefit Hopson’s heirs from spendthrift issues.
Hopson’s attorney fees to deepen his protection and coordinate with his estate plan netted him more than 10x ahead. Meantime, we are positioned for a sale with $5.6 million in gain later this year. Hopson’s immediate return will be +30x on that, exceeding The 20x Multiplier ℠..