FAQ – Benefits of working with CapGain Solutions

benefits

What does CapGain Solutions do?

CapGain Solutions is a dba of ZAH, LLC (Zombie Apocalypse Holdings), which was conceived by serial entrepreneur and angel investor Gary Kremen.  CapGain Solutions purchases certain types of securities and other assets that you own and desire to sell. The most common assets we purchase are preferred stock in investor-backed companies that have diminished in value, creating losses that can be written off to shield gains from winning investments. Other assets we purchase are common shares, promissory notes, warrants, real estate, llc interests with securities or real estate as underlying assets, intellectual property, etc.  We strive to make the transaction as effortless as possible for you, while taking appropriate steps to ensure the transaction is definitive and defensible during tax audits.

How is CapGain Solutions related to ZAH, LLC?

ZAH stands for Zombie Apocalypse Holdings. Zombie Apocalypse Holdings, LLC is the legal name of CapGain Solutions. CapGain Solutions is its dba (doing business as) designation.  We called the company Zombie Apocalypse Holdings because we help investors get rid of the “living dead.”

What is the worst case for not using CapGain Solutions

One bad scenario is you sell your private stock to your lawyer, friend, back office firm or brother-in-law.  The IRS audits the transaction a couple of years later and says the sale was not an arms length, non related party transaction. They also determine that the private stock was worthless the year before you did your transaction.  The year in which the stock because worthless in is beyond the statue of limitations for amending your return. In that case, you many lose the use of the capital loss forever! Now that is bad — a good reason to use CapGain Solutions for sure!

I don’t have capital gains this year. Should I still sell my losers now?

It is worth considering.  Selling this year will establish a definitive date of your capital losses on your losing investment. You may be able to offset $3,000 of regular income in the current tax year, and you will be able to carry your remaining capital losses forward into future years.  See our links to relevant IRS publications.

A group offered to buy my stock for $1.00. How are you different?

Our goals are to establish for the seller a definitive date and value for the asset divestiture and to provide a bulletproof process and documentation to withstand a tax audit.  We take steps to reduce risk that the IRS will object to the form of the divestiture.  Here is how we are different:

  • We establish negotiated pricing for each individual transaction.  According to our legal and accounting advisors, buying stock from everyone at the same $1.00 price does not really establish an arm’s-length, negotiated sale. It has the characteristics of a service, not a sale for fair negotiated market price.
  • We purchase other types of assets, such as notes, LLC memberships, distressed real estate, including international assets.
  • We correspond with the Issuer company to handle restrictive rights contained in most private stock purchase agreements, such as right-of-first-refusal, co-sale rights, and other transfer limitations. Our Asset Transfer Agreement gets the seller out of the transaction and gives us (as the buyer) the limited power of attorney to deal with the restrictive rights constraining the seller.  We take responsibility for following up on all these, to ensure the transaction is completed.
  • We support customers in case of an IRS audit.
  • To make the selling process easy and fast for the seller, we handle most of the transaction electronically (via email and DocuSign).  We also send FedEx labels, so sellers who have possession of their stock certificates can send them to us easily.

For whom is CapGain Solutions designed?

Several types of investors commonly use CapGain Solutions:

  • Venture capital investors
  • Private equity investors
  • Angel investors
  • Real estate investors
  • Corporations
  • Private lenders

What type of assets will you purchase? Are there any assets you will not purchase?

Typical purchases include the following:

  • Preferred stock in private companies
  • Common stock in private companies
  • Warrants to purchase common or preferred stock in private companies
  • Stock in public companies that no longer trade on established exchanges
  • Membership interests in LLCs and LP and GP partnership interests
  • Other assets as promissory notes, real estate, LLC interests with securities or real estate as underlying assets, operating assets, intellectual property, etc.

We typically do not purchase precious gems, jewelry, fine art, capital equipment, residential real estate, or most other hard assets. However, contact us to discuss your unique situation.

Can’t I just write off my investment after the company declares bankruptcy?

You might have to wait until the final, non-appealable discharge from bankruptcy, which could take years.  To realize your tax loss in the current year, sell your asset now to CapGain Solutions.

Will your tax accountants represent me at an audit?

Yes, our tax advisors will represent you, subject to you being acceptable to their standard new client procedure.  They will bill you at their standard hourly rate.

Why would I want to sell my asset(s)?

There are many reasons you might want to your asset(s). The most common reason is you want to divest an asset in a given year to take a taxable loss to offset a taxable gain on a different asset you sold during the same year.

Another common reason is you want to remove an asset from your books.  Occasionally, assets need to be sold to facilitate closing down an investment vehicle.

Selling your shares to CapGain Solutions creates a definitive transaction that will survive audit scrutiny and document a specific date on which your realized your capital loss. This enables you to recognize your loss in the current tax year. Selling to CapGain Solutions can be especially helpful if the company you want to write off has not been closed with formal legal documentation, or it is still in operation but is “walking dead,” and the tax write off is worth more to you than owning the stock.

Why would I sell an asset that still has value?

Many reasons.  A typical reason is you (or your limited partners) have a capital gain in the current tax year and are seeking losses to offset this gain and thereby minimize your tax bill.

For example, assume you have a $500,000 taxable gain on a sale of a security.  You have a different private investment for which you paid $500,001 that has miniscule likelihood of generating future returns.  By selling this holding to CapGain Solutions, you will generate a taxable loss that will offset your capital gain. In states with no related taxes, the loss might be worth approximately $125,000 in Federal tax savings.  In states with high tax rates, such as California, your tax savings might be worth over $200,000.  This is just an illustrative example only; your circumstances might differ. See other scenarios here.  Consult your tax advisor, as CapGain Solutions does not provide accounting or tax advice.

What is wrong with simply telling my accountant the asset is worth nothing?

The IRS has specific regulations about how to write off worthless securities.  See Code of Federal Regulations – Title 26: Internal Revenue: 26 CFR 1.165-5 – Worthless securities.

A loss must be “realized” to be “recognized” and recognized when it is realized. The loss deduction for worthless securities must be taken for the tax year in which the  securities became worthless. How do you prove it is worthless and became worthless in the current taxable year?  Selling your “worthless asset” to CapGain Solutions provides documentation that your loss is realized in the year you sell to us.

Why is selling to CapGain Solutions better than selling to my brother-in-law or lawyer for $1.00?

Are such transactions really “negotiated”, arms-length sales? We provide a valid asset purchase agreement you can use to demonstrate an arm’s-length sale, a “true sale” with no suspicion or appearance of buy-back rights. Our documentation can be especially important if you have a requirement for audited financial statements.

We will attend tax authority meetings – will your brother-in-law? Will your brother-in-law truly complete the purchase of an asset having right-of-first-refusal or co-sale restrictions? Will he be an acceptable buyer to the Company?  Will he warrant that he is an accredited investor?

Our online process saves you time and hassle.  You can avoid spending money on attorney’s fees, too.

What if most investors in my fund are institutions that do not pay taxes?

If you have any taxable investors, it is your fiduciary duty to consider how they maximize their after-tax returns. Also, do you, your firm, or your partners pay taxes?

Other FAQ’s


Start the selling process today and realize your capital losses in the current year!

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any advice contained in these answers was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.