Peter T. Beach
Phone: 603.627.8185
Fax: 603.641.2396
pbeach@sheehan.com
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Our company sold some intellectual property a few months ago. Now both parties to the sale believe it would be in their best interests to unwind the transaction. How can we do this?
Monday, January 31, 2005
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If both parties agree to unwind a transaction, they can simply enter into a new agreement that rescinds their original agreement, providing for whatever corrective actions they think are appropriate. Without proper tax planning, however, the parties could wind up with tax liabilities arising from both the original transaction and the attempt to rescind that transaction. Proper planning for a rescission, which can avoid all tax effects, even those associated with the original transaction, requires that: (i) the rescission occurs within the same tax year as the original transaction; (ii) the parties take all steps necessary to restore the status quo; (iii) the parties clearly express their intent to rescind; and (iv) the rescission is valid under the appropriate states' laws. Restoring the status quo is generally the most problematic of these requirements, but it may be sufficient to restore the status quo in all "material" respects.
While your sale may actually be fairly easy to rescind, other types of transactions, including dividends and compensation payments, can present greater hurdles.
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