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Summary of Podcast on EP26 - ESOPs and real estate - interview with Jim LaHam and Justin Knox - tax partners with Berman Hopkins CPA - The Grid Wiki

EP26 - ESOPs and real estate - interview with Jim LaHam and Justin Knox - tax partners with Berman Hopkins CPA

Journey to an ESOP & Beyond

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| September 9, 2022

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When should a business owner start succession planning?What advice do business owners who sold to third parties have to offer me?Will all of my employees become owners if I sell the business to them?

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This interview explores the issue of what happens if a company is selling to an ESOP and they have real estate held by the company. The main issue is that the ESOP has to purchase both the company's operational value and the value of the real estate. The cash flows have to take into consideration the debt related to each valuation and can create some challenges. To avoid this it is common to transfer the real estate out of the company into the selling shareholders possession but this can create tax issues. This informative podcast will walk through possible solutions to this potential issue for both S-Corp and C-Corp entities.

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Welcome to the theesopguy we are on a journey to an ESOP so glad you guys could join today for those that are joining for the first time this podcast is really  a resource that we've created to really help folks think about and determine whether or not and ESOP and play stock ownership plan would work for their businesses and so for each podcast what we do is we just take a topic and we try to dig into something that's specific.  That would be what we think is a good learning exercise for folks that are thinking about Aesop's so today what we're going to talk about  is the idea of being either an S corp or C Corp but really having the complexity of having real estate.  In the company prior to the transaction and what that creates and so  once we start working on an ESOP plan very at the very beginning of the very first step is really identifying the right entity structure so that the actual sale of an ESOP can be done correctly and  what we find is that sometimes the with real estate in the company it can be very complicated so to do that I've invited two of our very experienced tax partners with Berman Hopkins and that includes Jim laham and Justin Knox  and what they're going to do is help us kind of walk through the whole tax side and just really better understand this this.    [1:28] Topic and really get into kind of some of the solutions behind it to are some of the things that we see in the planning sides that I think will be really helpful  so with all of that I just want to kind of remind everybody go to our website at journey to an ESOP.com for all of the episodes and as we go through this topic,  you might also want to share it with a friend because you might know somebody that's thinking about doing ESOP so  so with that I want to say thank you guys for joining today I want to start off in welcoming you to the podcast with asking you really kind of a question I think is really important what is your favorite movie.    [2:05] And why and you have like just a brief amount of time to tell us okay there you go Jim what's your favorite movie.  You know that's that's an impossible question I get this asked tonight I see two movies a month even post covid and  you know I'm at a loss every time to pick out a movie that that is just so far superior to anything I've seen  you know I saw the Maverick movie just recently so you tend to tend to like what you just seen I saw bullet train that was pretty funny with Brad Pitt so I just have to say I would have to really think through this  for a long long time to pick one movie because I'm such a movie person so I'm going to have to leave it at that the last two movies I liked a lot were bullet train and the Top Gun movie.    [2:54] Video perfect and you can answer that question and it's like impossible I see a book you know it's just hard to do if you have a lot,  all right Justin what about you so bro so funny movies that I would quote a lot would be Wedding Crashers.  To this day and that's getting old so I love that movie.  Excellent one day the kids will be able to watch it too but not yet like when they're 30 that's right right.  So so great so thank you guys for joining and I said you guys are our tax Partners we have other text Partners but you guys are focused on Aesop's and  and really helping me stay out of trouble which is really good just briefly kind of talk a little bit about your respectively your.  Background over the Aesop's and I know Jim you've been doing it for a long time and adjusting Justin I've been working together for for several years now so.    [3:44] Yeah we sure have I mean I believe I mean Jim Jim is really the person that introduced both of us because I think about 2014 was when I started working on these.  With Jim we were coming out of the recession.  Transactions were starting to occur and this is one of the main one of the the main succession planning tools that can be utilized.  And and it's and it's gone from there when you agree Jim yeah I've started with esops with Deloitte  literally back into the late 80s I put in one of the first esops that Deloitte had ever done because it was pretty new on the street  and I brought that to the Berman Hopkins when I when I started here in 89 as an area of expertise that I didn't want to pass up so we did the lots of Central Florida ESOP transactions here  since that time and that of course  Justin started working with me and he's become an expert of sorts in this as well and I coaxed Phil and are getting into this this is a real deal.  From from a business development side and just a Consulting side so much fun to deal with in a tool that so underutilized because people thinks it's too complicated but it's only too complicated if you don't.  Hire the right people that understand Aesop's because they're a little bit complicated but there can be an incredible exit strategy in the right circumstances.    [5:13] Absolutely yeah what's cool about the the ESOP world is there is there is a lot of tax that you have to figure out  and I know we've been as a firm involved in it since Jim really has started the practice along you know in terms of our tax practice but on the tax side though as we get into the topic.    [5:31] One of the things you find in and the reality is that even though we're a CPA firm and we do this for our clients primarily the ESOP work that we do.  For at least what I do as far as helping companies create esops mostly their companies that don't actually  are not actually our clients their clients are all over the country they have their own CPA which is fine we end up working kind of in tandem with their CPA and.  You know so it's you don't know exactly what the CPA is done relative to their tax planning so your when you do start planning with it with a new client the first thing that we look at  is there their company's structure and their their entity structure so whether they're an S corp or C Corp.  Whether they're an LLC taxes in s so we're looking at that structure to determine you know what how they're going to transact and an ESOP you only can transact as a nest.    [6:25] Or see but deeper than that we're also looking at the balance sheet and what's on the balance sheet and some cases.  We find that there's real estate in the balance sheet so there's land and building the company has either acquired the land and building and the owner wanted to  to keep it in there for various reasons what are some reasons people would from a tax playing standpoint actually want to have real estate in their businesses instead of holding it in a separate company and leasing it back to the company which is  predominantly a structure you know I think the owner good reason I can think of living here in Florida is we have the commercial rents tax.    [7:02] Which is sales tax on rent a commercial rentals which is which is unusual I mean Florida's are very business-savvy state but we still there reducing that rate but it's still somewhere between five and a half six percent  so I have recommended in certain instances very reluctantly but in certain situations it does make sense to have the real estate in the business also some businesses  for example auto dealers typically they sell everything together which includes the  the dealership property which is very very integral to their whole business situation so those typically go anyway with with the with the with the with the transaction.  Other businesses I think in the big Capital world most or a lot of a lot of businesses don't want to  don't want the real estate when they make Acquisitions I mean Walmart doesn't hold our land CVS Starbucks they all have developers that dude the land and do the least backs  so  So they can be problematic and a lot of businesses But to answer your question that's the only good reason I can think of in Florida here as you avoid a significant expense that you can for go by putting it in the company.    [8:16] Crackling a you know with the formations of llc's and they probably being the strongest form of ownership in the state of Florida.  When it's in a multi-member environment that can be taxed as any type of structure.  The the either of a disregarded entity or the or the partnership type environment are the most friendly.  Tax wise because of this what we call it appreciated asset problem it's any type of appreciating assets real estate investments in other forms of intangibles.    [8:48] And unfortunately in a corporate tax setting that's corpse or see corpse.  You if you distribute these type assets it's going to trigger a form of tax that very hard to overcome.  And we may we may have a couple of strategies but we come down to the fact that.    [9:06] Specifically to to an ESOP you have to sell corporate stock and we don't have the flexibility to sell Assets in this case meaning.  We run into some issues where we're going to trigger some tax if we don't think through it how do we offset that tax is the better question.    [9:22] Yeah so let's get I mean I'll let me lay out the problem a little bit deeper to because I think the planning side is as you mentioned an ESOP sale has to be a stock sale we can't we can't buy the assets  and in the planning process if you're going to sell the real estate along with the operating entity  then you have this mismatch of cash flows which means I'm buying I'm buying the assets.  Of the cash flow of the operating entity and valuing that asset but on top of that I'd have to I have to get an appraisal of the real estate value that asset  and I want to buy the company as an ESOP I want to sell the company for that cash flow to kind of turn and pay that debt back in so that we can kind of get  get into other things that the company wants to do so the goal of these apis to buy out the you know the selling shareholder  and so if I add real estate on top of it now I'm going to have to structure your debt amortization around that that's going to have a long-term memorization so I've got this funky debt schedule in the cash flow and it makes a little bit.    [10:26] Difficult because you do want to get out of debt quicker than later or quicker than or sooner than later  and so so part of this truck structurally just works better when the real estates not in there in my opinion and putting deals together yeah I think we.  I answered the only one reason I've ever found to have it in the entity is for sales tax purposes in Justin pretty much described he can't think of any so so the reality is  if you have a  if you're in putting together a company keep your real estate separate you might not think about it now but it is it will become a problem or at least a challenge into the future when we try to try to exit try to sell the business so I would say yes keep them separate  it gives us so much more flexibility but we have some thoughts on those companies that that have done it and that's the way it needs you know the way the world is some some people have done it for a variety of reasons and now when the time comes we got to figure out how to how to.  Split those assets off.    [11:25] In that and that's kind of what this whole podcast is going to be about is like here I come down the hallway asking Justin and Jim hey I've got a company that's got real estate in there  in their balance sheet and how is there a magic pill that I can pull out the real estate and not have this taxable event.  For the selling shareholder because in their minds they didn't do anything wrong I mean they probably  did it with all good intentions but now they're trying to do a transaction and then you start looking at  the ramifications of doing the transit of doing the ESOP transaction in we want to we want to separate it so so I'm not going on your door saying hey you know is there a magic pill here is there a way to do this that  is you know let's just take the S corporation environment and then maybe we can go into the C corporation and I think they're fairly similar right when it comes to early failure when it comes to these rules so why don't we answer this by.  Justin I have come up with the 22,  to I think workable strategies when you have real estate in the business that is problematic and and we have to have to get it out.    [12:32] And now I'll answer one strategy and then.  Then I'll let Justin answer the other one and you know we can almost start Jim you know when we had when we discuss this topic that most might come to mind if they've ever been.  Through re organizations we talked about could you spend the real estate out but unfortunately that's not.  A qualified spin out correct just spinning the real estate isn't a qualified,  reorganization to try to get it out into a new S Corp yeah so the first question that comes up often as well I'll just spin it out  the spin out the you know the put the acid in a new Corporation then spin it out to the shareholder but.  The IRS and Congress has said that's not considered a business unto itself and to be a qualified spinoff  it has to be a trade or business and they'll consider a rental property trade or business for this purpose so that leaves us now speak to the first strategy which is.  Is if you distribute an asset  out of the company it's a taxable event at fair market values if you purchased it at fair market value in it's going to trigger a gain let's take an s-corporation at the S Corp level  so    [13:46] That that is that's a reality we don't really see getting around that but an offset to that least in the current environment when Justin I thought through this is and we've done this recently and says well maybe this transaction is not as bad as you think you're going to you're going to push the asset out  and you're going to pay gain on the difference between the basis in the company which you got left after your depreciation and it's fair market value and if you get a sensible  value on the fair market value on the lower side of an appraisal you're going to pay tax in that difference largely a capital gain rates so now think through it though usually stops you're in the in every says that's terrible result I'm not going to do that so what we think  think about it a little bit now you have really acquired a new asset.    [14:30] After the distribution and you have the ability to put that through a cost segregation study.  And your depreciation is going to come through largely at a 37 percent rate worse than case thirty percent rate so you're actually going to be trading capital gain rates of maybe,  let's say two twenty two percent.  For a deduction that's going to be somewhere between 30 and 37 percent and these costs like studies will often generate maybe thirty percent of that building  depending on how complicated the building is a manufactured be much more than an office building  about thirty percent of that cost basis in the building is currently going to be eligible for bonus depreciation  so in a million dollar building that's a simple example you may be able to be able to write off 300,000 the first year now you kind of link that up with your capital gain  in a kind of works out pretty well in the long run so it may not be as terrible as you think.    [15:30] Let me let me ask you a question because I think people we have to assume people don't know what it costs egg is just so you know that's good right the jargon  yeah so so briefly I'll just say let me go backwards just a second so the whole purpose business purpose is we pull the real estate out and we're going to rent it back to the operating company and in the ESOP transaction  what the owners going to get is going to get this ongoing stream of cash flow from that rent and that rents going to be a fair market diarrhea and it's going to be that's going to be a good structure because they're going to get the.  The sale of the business plus the rental income and then over time that's a good that's a good stream of cash flow for both those sources so it's got a good business purpose but what Jim's talking about is if you pull the real estate out  and it was in the company we're talking about an s-corporation right now.  Then you can also then take you take it out and put a new entity and then do a study on the assets that permanent  Assets in the building and accelerate the appreciation from 39 and a half years down to say 15 or 12 or something based on an engineering study that shows that you can accelerate that appreciation and then what you're going to do is be able to write off an X  amount of depreciation annually against that income so that basically the play.  That's a good synopsis now will real quick my question is it what if in the S corporation they've already done it costs egg.    [16:52] Well what you really have is a new transaction because when it goes out it's as if you purchase this asset at fair market value so so you start you start fresh.  And and thus the caustic thing for our viewers is when you look at a building setting  the things that we write off quickly are there's going to be some equipment embedded in the in it so that's five-year property there's some equipment  there's going to be landscape lighting parking lots Landscaping all that stuff can be written off of a very short periods of time and someone eligible for bonus depreciation so the point here is  even though it seems like a  a drastic transaction at the beginning is going to create this capital gain tax remember that's a low rate acts but you're trading it in for a high deductible in Rapid depreciation situation now I would finish it off by saying  okay now you have this  building and you've taken a rapid depreciation to mitigate the taxes at the at the year that you take it out but then if you want you have a building that's theoretically tax or mean.    [17:58] Debt free is you can then go to a bank and leave enough equity in it and say now that I have basis in the building I can strip some of the equity out.  So my million-dollar example I may be able to go back in,  and we kind of describe this as pre-selling the building by let's say taking out a six hundred thousand dollar mortgage and just taking that money and doing what you see fit with it because if this is very typical of what real rental real estate professionals do all the time.    [18:25] Verse selling the property for the long run they'll refinance the property.  And take out the appreciation and they could do this multiple times as you mentioned Jim as long as they have a long-term lease involved.    [18:38] So long ago so it's not as dismal as you would think I think and that's why you have to deal with somebody that really understands some of the nuances of these what would be considered problematic acid.  Like like real estate so I want to talk about yeah go ahead go we move further talk briefly about the concept of my when they take it out they get this Step Up in basis so in the new entity.    [19:01] And like explain what that is because people always say step up in basis and I just like people to know that the basic so let's say you had a building that was depreciated down to 200,000  and it's worth a million dollars I know that's probably understanding today's Marketplace but for Simplicity so,  when you distribute it out you have an eight hundred thousand dollar gain in the company.  The individual picks it up at a million dollars because he got a value of the million dollars of property so he picks it up in on his personal.  On his personal side at a million dollars and then.    [19:41] It's considered a purchase and acquisition so that the individual can do whatever he wants with it likely would put into an LLC  maybe a disregarded entity with his wife  and then he has all the ability to use a cost segregation study to maximize depreciation currently and do whatever they want with in terms of stripping some of the equity out in a refinance.  Okay so twofold we could get the typical cost segregation you know breaks the building into components as was mentioned before.  If we could break out twenty to thirty percent of it in the shorter lives we have bonus depreciation per se that's eligible for that advanced depreciation.    [20:25] Jim mentioned maybe maybe in the first year you might have close to it two or three hundred thousand dollar deduction.  That could be worth almost 100 that could be almost a hundred thousand dollar tax shield.  And when you're looking at a couple hundred thousand dollars in tax attack Shield of maybe 100.  Maybe there's a net hundred out-of-pocket that we're talking if you're just looking at the tax piece.  And if people are trying to associate a cash flow as typical real estate developers are if they don't want to sell their property.  You could potentially refinance it for the increased fair market value.  Have a cash stream that paid for those taxes Plus have additional equity in your pocket that you could spend.    [21:08] Sounds good so so going into that  in terms of having it in the S Corp you know that's where the real estate is if we if you just end this is probably a crazy question but if you had a holding company.    [21:22] And then in the holding company you had separate entities one was a real estate entity one was your operating entity.    [21:29] Can you sell that operating entity and then leave that holding company with the real estate there.    [21:36] Can I sell that stock down here is that possible we good question right.    [21:42] It's a good question and it's a tough question and you're just going to be it's a subsidiary yeah in the S corporation environment.  Any subsidiaries unless there unless they're separate Partnerships but if you sell that.    [21:57] If it's if it's 100% owned subsidiary it's considered selling assets for federal tax purposes because it Q sub is completely disregarded for those purposes.  And you you would have to recognize the the appreciation but in this case you cannot sell.    [22:15] Assets to know you can't have to sell stock.  So you can't buy that that subsidiary you essentially have to buy the holding company to make the ESOP transaction vallot right it's a I don't quite understand that.  Why it results in that but that's what that's kind of what the tax thinking is now because it's really a corporation for every other reason but.  In this kind of  complicated tax talk but it's considered a disregarded entity for tax purposes which means it doesn't exist as a corporation so that's why it doesn't work because you for tax purposes you're buying assets  not stock so you have to go up and buy the holding company stock to make it qualify this is one of those rare instances I've seen in evening your deals Phil.  Where if a company is an LLC taxes in s-corporation per se a lot of times they'll form a holding company that's specifically in ink.  The cell to the ESOP so that there's no questions that corporate stock is being sold.    [23:18] So that it so that it's qualified property going into the into the retirement plan or the sucks not just what do you think if it was a c-corporation  that had a subsidiary don't have that disregarded you know I'm not certain of this answer but seems to me a subsidiary in a c-corp environment is a real company  and you may be able to then go in and buy the operational company there that that may be an advantage to having a c-corporation environment with a holding company that you could go in and buy buy just that.    [23:49] That legitimate Corporation in a c-corp structure you you we could potentially do that and we have a work through that.    [23:58] Scenario but we could work through that scenario but typically we don't see the c-corporation environment unless we're really looking for a deferral under a different code section.    [24:09] Yeah let's just throw it on as a like let's just go to the C Corp topic for a second because I have another thought or question so let's just have a c-corporation I have real estate in The Entity.    [24:20] And as a c-corporation on an ESOP I can do the 1042 transaction which basically means I can like-kind exchange the stock.  To this qrp this qualified replacement property and all my capital gains in that structure is going to be deferred into the qrp.  If I do it right and then from there I can pull out of the qrp with floating rate notes have.  10% of the qrp secured by liquid assets and then I can take 90% out with floating rate notes so if I have a c-corporation with real estate in it.    [24:52] And I do an ESOP sale a hundred percent transaction Is it feasible that I can completely eliminate the.  Or defer the capital gains on that real estate sale if I sell the real estate in the transaction let's just assume that I analyze it on like Hey by doing that you can sell the real estate and the company.    [25:11] And we won't have any capital gains with that be with what do you think about that structure.  Yeah I think if the whole company goes in a 1042 transaction.  C corporation transaction yeah I think it's just happens to be another acid in the in the C Corp in the balance sheet you should be able to do you know you  calculate your gain and 24 although with replacement Securities that may be an advantage of being a c-corp.    [25:38] Sure I mean Deanna and I guess really you're thinking that this deal would be easier to get done under a 10:42 environment.  Even including the real estate correct though yeah because then there's this carrot of  you know whatever whatever that especially if you have you know it always everybody always says it depends right so if you have a scenario where that real estates are you know appreciated and tremendous value so that that  capital gains is going to be a big number then it could really make it could really make a big difference in the planning yeah that could be a that could be a  kind of a silver lining when you think you have a problematic situation you still going to have the capital problems of the entity having real estate now because they're going to have to finance that all in the transaction but  you know that kind of leads to to a second strategy that  maybe what you could do if it all goes is the company now has real estate that would that it's that's causing some problems because of cash flow.    [26:40] Because I have come up with all this money to buy it and and that now the one strategy just and I thought about it was maybe you approach a commercial developer  that does does his transactions all the time you say look we got incredible  asset here we've got a building and you know plant we're willing to put it into a 10 maybe even longer lease but we want you to buy it at fair market value for let's say.  Five million dollars and when will lease it back  over 10 or 12 year term some kind of term that is certainly going to have to be 10 years so that that infuses just a huge amount of cash into the now post ESOP transaction.    [27:23] That that just kind of refinances the whole thing by  going to the sale-leaseback proposition and I think that's a real real opportunity in a situation where you have to do the transaction the bank  as long as they understand you're in the middle of soon as you get this and get it under way you're going to sell it to you know Wall Street some like a reed or just somebody that invests in it on regular basis as I love.  10-year leases that give me an Roi of 12 or 15 percent.  So I'm going to structure the lease payment but I'm gonna give you all this cash you get this up front to do other things expand the business get your balance sheet cleaned up.  Pay off debt immediately yeah right initially stopped at the bank would actually love it because then they get they get the fees on the deal and pay it off or not I think that's a great  it's a great idea do that with an with an S corporation to right  yeah yeah working both sides and you know it's something we haven't focused on what when we were preparing for this I think we both said man we need to bring this up because there's a lot of  Real Estate Investors that like pretty much Guaranteed Rate of returns with really good tenants and the real money is in is commercial tenants that  you know a real solid through thick and thin and I think those buyers are always there.    [28:45] Well not to mention if it is an S corp and we went 100% ESOP now you have an entity that can pay that least back.  As a tax-free entity so if you paid if the all that cash came in and you paid your debt down now you have an entity that doesn't pay taxes to pay the lease so your  it's because there's two you're selling that building that's highly appreciated in the company has a giant capital gain after they  you know the ESOP does but these have doesn't pay tax sorry that appreciation never gets taxed.    [29:18] So I think it's something that we didn't had to our toolbox as we you know as we start to work with in the financing side and the tax I for that matter of something to really consider.    [29:30] It's really good yeah that's a good idea I mean and that's when you look at some of the planning things you're like well.  You know it all seems like bad news sometimes but if you can really work it into a better situation you know somebody can really come out smelling like a rose.  And I think for those of you would consider an ESOP we've been doing these for a long time and.    [29:52] I've never wondered why they're not utilized more so this is a little bit of a little bit of a commercial perhaps or the firm but we really.  I do understand these transactions we're experts in these transactions most practitioners most attorneys do not understand the strategy and they invariably say they're too complicated  and people listen to their attorneys and their CPAs who just don't understand it  just not not at all experts at all experts I mean that literally so often times they just get stopped before they get started  so we're very open to these transactions we understand the solutions and and I think  you have to find somebody that really does understand the nuances of these transactions like our firm does yeah that's great  so basically with the I guess the other issue that we go back to the just to see Corporation and they have a piece of real estate we don't do the least back or we just kind of have to pull it out there any additional taxes that they would have that an S corp wouldn't have.    [30:52] Justin give them the bad news yeah and he they would in the unfortunate situation.    [30:58] You you unequivocally want to keep it the company would pay gain there's no such thing as capital gains a c-corp environment.  So let's just say they would pay 26 percent if they were to Florida Federal rates plus Florida rates.    [31:13] Then when they distribute that property it would be considered a qualified dividends of a shareholder.    [31:20] But it would be subject to the net investment income tax so likely in these shareholders income tax bracket they be a 23.8%.    [31:29] So in order to sell it at fair market value and distribute it there could be somewhere close to fifty percent tax on the transaction.    [31:39] Now that's bad news that's bad news I can't I can't do bad news anymore no I didn't know,  Jim gave you the bad news part of it there it is we better 10:42 it is the answer yeah that is the answer  that is you 1042 the whole thing you sell the whole thing together and then have them do the sale and leaseback.  Grab that is it yeah well so I think we I think we've nailed that down when it comes to  you know commercial real estate I think I think a lot of those points are really good I let's just quickly summarize some things on the costs egg I think are important to think about.    [32:16] I think my biggest point to kind of finalize everything we talked about is is planning this identifying this problem up front  before you get too deep in your transaction so going into and hiring a trustee and hiring the valuation firm and hiring the attorneys and before you get into the deep Waters of actually a transaction you really want to lay this out with your CPA  with your cell site advisor you really want to have a very good understanding of what the tax implications  are going to be and that and that frankly is one of the reasons I like doing this from our place which is a CPA firm because we are much more CPA minded in transactions,  when a cell site advisors not in a CPA from their kind of relying on their the company's CPA firm to do all this but sometimes they just  you know like it or not they don't they don't necessarily do a lot of transaction work so so identifying this up front.    [33:11] Making sure that you can navigate through it because it's going to be a very big part of the net proceeds of the transaction I think that's my biggest summary for what we just talked about what about you guys.    [33:23] Well I think it you know we've evolved as a firm as well our feasibility studies I think now are more robust or little more  um I would say hello look at the entire transaction something like this seeing the real estate in advance we.  Typically wouldn't have thought of that as a big deal we just kind of look at what a transaction might look at but I think now we would look at the feasibility side  looking at the real estate concerns in before we even go and start doing you know a lot of investing in a lot of a lot of other things  you know I think that's part of the feasibility study now that you can see whether it's a go or not to go before you go to I think I used to we still kind of go to the appraisal Rod first in our.  That's exactly how we go yeah because.  We used to originally clients would tell us what they were worth and then we would invariably go down a feasibility study based on what they thought they were worth and typically they're less than that  and that we had we would run into a problem with with making it all work because the value is not was not based on an actual  certified kind of valuation analysis that would be much closer to actual market value so you start with that a good appraisal see what you're really worth on the outside and then then you go into that feasibility analysis and have to consider.    [34:45] All kinds of parts of including problematic aspects like appreciate Securities appreciated real estate in kind of solve that upfront before you go into that you know full-blown transactional analysis.  Great what about you Justin.  No I absolutely agree because depending on the stage of the succession you're at if you're late in the game we have less options.  If we're early in the game and planning for the succession in the type of tools we likely won't run into these S Corp scenarios or potentially we could have come up with strategies.  When things weren't as highly appreciated so,  they had at this point in time if it's imminent we're going to sell in the next year I think the strategies we discussed or are probably the best plan of action.  Had it been from the Inception or a decade before in your.  Real estate's not worth nearly as much potentially we would have already had that in a partnership environment thought that through in your planning.  Already had a cost segregation in place so I think it boils down to where you are in the process.  It emphasizes how important annual tax planning is just for just for these facts in case we need to get the real estate out now so that you don't have a problem in the future.    [36:03] Great well thanks guys for for joining me to do that today I think it's really helpful kind of covering a very specific topic that I think gets kind of Miss sometimes and when it does pop up it can be pretty.  Can be pretty interesting or difficult so with all of that thanks for listening today and we will look forward to our next step on this journey

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