Income Tax Receivable Agreement

In the Up-C operation, a new C Corp is created as a vehicle for raising capital from the public market. C Corp uses the IPO funds to acquire some or all of the shares of the former partners in the partnership. To the extent that the partnership is provided by IRC Sec. 754-Wahl, C Corp receives an increase in the tax base of partnership assets according to IRC Sec. 743(b). Often, the most important capital that is strengthened is goodwill. For tax purposes, goodwill is a SEC. 197 asset amortized over a period of 15 years. If the step-up goodwill is $150 million, C Corp will be able to protect $10 million in tax revenue each year over the next 15 years. Traditionally, Legacy`s partners obtain super voting rights in the new listed C Corp and thus retain control of both legacy and C Corp.`s businesses.