1

In tax law class we said that getting open transactions is highly unusual; there are sophisticated ways of estimating future revenues so a truly indeterminate stream of revenue is not likely. But I asked my professor what's an example of something that would qualify for open transaction status today. He did not have an answer.

Any ideas?

1

Open transaction treatment is very rare because transactions structured completely openly are very rare. If they happen, it would be in an earn-out situation. For example, if you sell an asset in consideration for 10% of the revenues from the asset,to be paid to you until the time when the S&P 500 index reaches 28,000 - you may get an open transaction since neither the time nor the amount of consideration may be determined at the time of sale.

As I said, it rarely happens. In most earn-out cases, there are pre-determined ceilings on on either the amount ("to a maximum of $XM"), or the time ("until the earlier of the S&P Target Date or the 5-year anniversary of the sale") or both.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.