Major Manufacturer (MM): Like Kind Exchange Program
Major manufacturers typically establish finance programs for their products. In many instances, they will establish a leasing program. One of the advantages of leasing equipment is the tax advantage generated by depreciation. Since depreciation is typically accelerated as compared to the actually devaluation of an asset, when the asset is disposed of a gain is recognized by the company. It is possible through the usage of Like Kind Exchange program to defer recognizing this gain indefinitely or at least until a tax year that the tax gain can be offset against losses.
While working on other projects for MM, GAI identified that MM was not taking advantage of the Like Kind Exchange Program for its leased assets. GAI presented this lucrative opportunity to MM. MM authorized a task force to evaluate this opportunity. Working with a task force that consisted of Tax Attorneys and Operations personnel, it was determined that MM could take advantage of the tax deferral.
Why Goff Associates, Inc. (GAI)
GAI has experience in analyzing complex problems and opportunities, quickly developing solutions, and following them through implementation. GAI had done a substantial amount of analytical work for MM previously.
GAI worked with a team of tax attorneys, accountants and operational personnel to develop a plan and implement the Like Kind Exchange program for leased assets. GAI developed a system that tracked of the equipment through the exchanges and generated the applicable reports to be used in the tax reporting. One challenging aspect was the matching of equipment being disposed of to new equipment that was being leased.
The program was successfully implemented and simply applying a market interest rate to the deferred taxes demonstrated a savings of approximately $100 million a year.