If you`re in the business of real estate, you may have heard about the Forterra Tax Receivable Agreement (TRA). This agreement has been gaining popularity in recent years as a way for companies to monetize their tax assets. In this article, we`ll dive into what the Forterra TRA is, how it works, and what it could mean for your business.

What is the Forterra Tax Receivable Agreement?

The Forterra TRA is an agreement between a company and its shareholders. It allows the company to monetize its tax assets by selling them to the shareholders in exchange for a cash payment. The cash payment is equal to the present value of the expected tax benefits that the company will receive in the future.

How does it work?

Let`s say Company A has a net operating loss (NOL) carryforward of $100 million. This means that the company can deduct $100 million from its taxable income in future years. However, the company may not have enough taxable income to use up the entire NOL carryforward.

Under the Forterra TRA, Company A can sell its NOL carryforward to its shareholders in exchange for a cash payment. The shareholders can then use the NOL carryforward to offset their own taxable income. In return, they agree to pay Company A a portion of the tax savings that they receive from using the NOL carryforward.

For example, let`s say that Company A agrees to sell its NOL carryforward to its shareholders for $50 million. The shareholders can use the NOL carryforward to offset their own taxable income, resulting in a tax savings of $30 million. Under the Forterra TRA, the shareholders would agree to pay Company A a portion of the $30 million tax savings, say 50%, or $15 million.

What are the benefits of the Forterra TRA?

The Forterra TRA can provide several benefits to companies and their shareholders. For companies, it allows them to monetize their tax assets and receive a cash payment upfront. This can be particularly useful for companies that are not currently profitable but expect to be profitable in the future.

For shareholders, the Forterra TRA provides a way to offset their own taxable income and potentially reduce their tax liability. It also allows them to invest in a tax asset that they may not have been able to access otherwise.

What are the risks of the Forterra TRA?

As with any financial instrument, there are risks associated with the Forterra TRA. For companies, there is a risk that the tax benefits they expect to receive in the future may not materialize. This could result in a lower cash payment from the shareholders than expected.

For shareholders, there is a risk that the tax savings they expect to receive may not be as large as anticipated. This could result in a lower return on their investment in the Forterra TRA.

In conclusion, the Forterra Tax Receivable Agreement provides a way for companies to monetize their tax assets and for shareholders to offset their own taxable income. However, as with any financial instrument, there are risks to consider. It`s important to consult with financial and tax professionals before entering into a Forterra TRA to determine if it`s the right fit for your business.