BVO with Sunset Clause
A Fortune 500 financial services company with more than 14,000 employees in nine locations across the United States and seven locations worldwide.
One of Paragon’s valued clients was being audited by the IRS and their relocation Buyer Value Option (BVO) homesale program was under scrutiny. For a corporation to be tax compliant with IRS Revenue Ruling 2005-76, Worldwide ERC® tax counsel recommends client organizations provide a guaranteed buyout at the end of the BVO process in order to operate in the most favorable way to protect the tax exempt status of their third-party relocation homesale program. Since the client previously did not include a buyout for their BVO program, this created a possible financial risk.
Paragon assisted our client with the IRS audit by providing detailed information about the transactions being audited and their relocation program, including the details of their BVO homesale policy. Right away, this made the audit easier for our client contacts to manage.
Next, Paragon recommended to our client to approve a policy change to include BVO with a Sunset Clause as a way of minimizing financial risk and liability in any future audits. The intent of the Sunset Clause is to provide a guaranteed buyout offer if the property does not sell after a defined marketing period. Under the Sunset Clause, once the home is marketed for a defined period of time (in most cases 180 – 240 days), Paragon will begin the appraisal process to establish a guaranteed buyout on the home. Once the value is determined, an offer can be presented to the transferee and considered during the policy-permitted offer period. If the transferee decides to accept the offer, the home is purchased by Paragon and becomes an inventory property to be marketed by Paragon’s inventory specialist team. If the transferee does not accept the guaranteed buyout and there is no outside offer, homesale benefits cease.
In some instances, companies may discount the guaranteed buyout offer as described in their policy to encourage the transferee to market the property based on the market’s feedback. Paragon works closely with our clients to determine the best approach to minimize homesale costs. However, the key to the discussion regarding BVO with a Sunset Clause is that a program with this policy feature would be deemed more likely to be compliant with industry practice and IRS preferences.
After a thorough consultation, Paragon revised the client’s BVO policy, incorporating a Sunset Clause that is compliant with the guidelines set forth by IRS Revenue Ruling 2005-76 and recommended by Worldwide ERC®’s tax counsel. As a result of the policy change, our client has better tax protection and has reduced their chance of negative financial exposure should they be audited again in the future.