Some individuals and businesses acquire distribution rights as investments or for use in their trade or business. These individuals and businesses may dispose of those rights for a variety of reasons, including the expansion or relocation of their business operations, or changes in their business needs.

Distribution rights — whether for alcoholic beverages, snack foods or other products - may have appreciated in value, or may otherwise be sold for far more than the value reflected on the company books. Disposition of the distribution rights under these scenarios can result in significant exposure to capital gains taxes.

Even with the current low capital gains rates, the tax liability on highly appreciated assets can be substantial.

Under Section 1031 of the Internal Revenue Code ("IRC §1031") individuals and businesses may exchange qualifying property for like-kind replacement property. In qualifying transactions, the taxpayer defers recognition of up to 100% of the capital gains and depreciation recapture that would otherwise occur at the sale of the property. This transaction structure is known as a "like-kind exchange." Owners of aircraft, aviation equipment, landing rights and related assets who plan to sell an asset and acquire another one shortly thereafter should discuss IRC §1031 with their tax and legal advisors, and consider structuring the transaction as a like-kind exchange. The tax savings enable the reinvestment of more money into the replacement property.

Individuals and businesses should consider disposing of distribution rights in a deferred exchange whenever reasonably possible. The current federal capital gains tax rate on equipment is ample incentive to defer taxes. Advance planning and coordination among the taxpayer, Qualified Intermediary (QI), and tax advisor are needed to ensure a successful exchange of business or investment assets.
All commercial loans and lines of credit are made by Citibank, N.A., an equal opportunity lender, and are subject to satisfaction of Citibank's underwriting and credit approval.

Citibank, its affiliates and their employees are not in the business of providing tax or legal advice. Any discussion of tax matters is not intended to be and cannot be used or relied upon by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

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Terms and conditions of accounts, products, programs and services are subject to change.

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