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Episode Summary
You’re getting tax reform advice from five different people and every one of them is contradicting the others. Your CPA hedges. Your attorney defers to “another professional.” Meanwhile the bill got signed December 22nd and you’re supposed to know what your entity structure should be, what your buyers are going to look like, and how to model a deal that closes in eighteen months. I brought James Markham from EY on to cut through the noise. James lives in the world of fast-growing private companies headed for an IPO or a transaction, and he laid out the real stuff: why choice of entity is suddenly a five-year pencil-to-paper exercise instead of a default, why corporate buyers just got a lot more cash and PE just got their interest deduction capped, why 100% expensing is a “new drug” that owners are getting hooked on without thinking about year two, and why high-tax-state owners are about to lose people over a $10K SALT cap. We got into the buyer pool shift, the Milestone 6 — Transaction Value math, and the readiness work you have to do before diligence starts digging.
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## Top 10 Takeaways- Your entity choice (C corp at 21% vs. pass-through with the 20% deduction) is a five-year exit analysis, not a knee-jerk decision.
- If you’re a C corp, buyers don’t get a step-up in basis. Your structure quietly changes how attractive you are.
- Corporate buyers are bringing offshore cash back at favorable rates. Your buyer pool just got deeper.
- Private equity now caps interest deductions at 30% of adjusted taxable income. Their math on your deal changed.
- 100% expensing on asset deals makes capital-intensive targets more interesting, but model out five years before you celebrate.
- Depreciation is a drug. Expense everything this year and you have nothing to shield income next year.
- The $10K SALT cap turned high-tax-state talent into a real cost. You’ll lose people or pay more to keep them.
- Executive comp deductibility cap now includes the CFO. Hiring senior talent just got more expensive.
- Entertainment deductions are gone. Meals stay. Your sales playbook needs to know the difference.
- If your books aren’t clean before diligence, the new tax law gives buyers another reason to take a haircut on price.
Sound Bites
“If anybody thought there was simplification here, it didn’t happen. Maybe at the lower individual level, but certainly not for businesses in corporate.” (@TBD) — James Markham
“It’s not business as usual anymore. If you’re saying hey, this is the way buyers were looking at me in the past, I’ve got new buyers. Maybe I need to go out to a corporate buyer to see if there’s an opportunity there.” (@TBD) — James Markham
“He got all excited about expensing 100% of the purchase, but then he says wait, I’ve been using depreciation as a shield against paying taxes every year. So what you’re telling me is I can expense it all this year, but next year I’m not going to have that deduction. I go yes, it’ll be your new drug.” (@TBD) — James Markham
“Those people that don’t think that people make decisions based on taxes are somewhat blind. That’s all I hear all day long.” (@TBD) — Ryan Tansom
“You work so dang hard to make all the money. Like, make sure you’re doing it right so you can keep as much as you can.” (@TBD) — Ryan Tansom
About This Episode
James Markham is a tax partner at EY (Ernst & Young) working with high-growth private companies that are headed for an IPO or a transaction in the next five years. He sits inside EY’s national tax practice and works alongside the firm’s transaction and assurance teams on deal readiness, entity structuring, and the operational impact of tax law changes. This episode was recorded in January 2018, weeks after the Tax Cuts and Jobs Act was signed into law, when most of the guidance was still provisional and the AICPA had just sent the IRS a letter asking them to clarify 25 open issues. James connects to the show’s transaction-value theme: tax reform didn’t just change the rate, it changed who’s at the table and what they can pay.
Resources Mentioned
- EY (Ernst & Young) — James’s firm, with webcasts and tax reform analysis available. — ey.com
- EY Strategic Growth Forum — Annual conference in Palm Springs where tax reform impact on high-growth companies was covered.
Connections
Phase + Module:
- Module 2 — Expand Knowledge — Tax law as one of the outside forces every owner needs a working understanding of before a transaction
Milestones:
- Milestone 6 — Transaction Value — Buyer pool, structure, and deductibility all land here
Concepts referenced:
- Enterprise Value vs. Equity Value — Step-up in basis, asset vs. stock deals, and how structure changes what a buyer will pay
- The Multiple & WACC — Cash flow models still drive multiples, and the rate change moves the number
Related episodes:
- Bill (EY M&A) referenced as a future guest on the buyer landscape side of the same conversation