Selling to private equity on an installment note

Who

A couple in their mid-fifties living in the Midwest. The husband owned one-third of a manufacturing company, an S corporation he had built with two partners. A private equity firm bought the company, paying a portion of the price in cash at closing and funding the majority with installment notes. The owners each kept a minority interest in the new company. The husband is a hands-on investor who genuinely enjoys managing his own portfolio; he was not looking for someone to take that over and did not want to pay a percentage of his assets for advice.

What they came in with

• A sale that had already closed, with cash in the bank, notes that would pay out over several years and a rollover stake whose value depended on the new owners' plans.
• A tax picture that had changed completely. Income that used to arrive as salary and S corporation distributions would now arrive as installment payments, interest on the notes and eventually whatever the retained stake produced.
• The question of whether anything could soften the capital gains tax on the sale. They had read about the qualified small business stock exclusion; because the company was an S corporation, it did not apply.
• A net worth in the low eight figures and estate documents that predated the sale. The couple's combined federal exemption of $30 million in 2026 ($15 million each) covers them for now, but their state has its own estate tax with a far lower exemption, and the rollover stake could grow.
• A clear preference: they wanted a CPA financial planner focused on reducing taxes, paid by the hour, and they wanted to keep managing their own investments.

What we did

The engagement began with a comprehensive plan, built over the Exploration, Vision and Obstacles meetings and a document collection phase. Implementation ran through the first full year after the sale and came to about 70 hours.

• Found the right specialist. The sale needed a tax attorney who could also think like an accountant. We located and vetted a tax attorney with a CPA license to advise on the tax treatment of the sale and on the couple's estate planning, and we coordinated the handoffs between the attorney, the couple's existing CPA and the plan.
• Mapped the installment income. Under the installment method, the gain on the notes is recognized as payments arrive rather than all at once, so we built a year-by-year projection of taxable income from the note payments, the interest, the rollover stake and their other assets. Where a seller's installment obligations outstanding at year-end exceed $5 million, an interest charge on the deferred tax also applies, so that was modeled rather than discovered on a return. See asset sale vs. stock sale.
• Roth conversions, in two stages. With income arriving unevenly over the life of the notes, some years land in lower brackets than others. The couple converted both of their existing IRAs, six-figure balances, to Roth accounts first. The much larger account, his company 401(k) rolled into an IRA after the sale with a balance in the millions, is deliberately waiting: converting an account that size while the installment payments are still landing would push the conversions into the top bracket, so the plan is to convert it in stages once the notes have paid out and his income drops. The one variable we keep watching is the rollover equity stake, which could be sold at any time if the private equity firm finds a buyer and exits, and a liquidity event in the same year as a large conversion would be an expensive combination.
• A Qualified Opportunity Fund. We evaluated deferring part of the recognized gain into a Qualified Opportunity Fund, weighing the deferral and the potential exclusion of appreciation inside the fund against the quality of the underlying investment, the lock-up, and whether the couple wanted that exposure on top of the rollover stake. The decision was framed as an investment question first and a tax question second. After we did due diligence on a specific fund, he invested about $100,000 in one that develops a solar array. The fund later sold clean energy tax credits it had generated, a benefit that wasn't part of our analysis and shouldn't be counted on from any fund.
• Estate planning. Working with the tax attorney, we addressed the state estate tax exposure, the treatment of the rollover interest and the notes in the estate, and updated wills, trusts and powers of attorney. The $19,000 per person annual exclusion covered gifts to children and grandchildren without touching the lifetime exemption. See How much can I give tax-free in 2026?
• Investments, their way. The husband kept managing the portfolio. Our role was to set the asset location across taxable, pre-tax and Roth accounts, flag the concentration the rollover stake represents, and make sure the cash needed for taxes on each installment was set aside before it was invested.

Outcome

• A multi-year tax projection the couple and their CPA now work from, with the installment payments, the interest charge and the Roth conversion amounts for each year laid out in advance.
• A tax attorney and CPA working from the same plan, and updated estate documents that reflect the post-sale balance sheet and the state estate tax.
• Two IRAs converted to Roth in the first year, with the multimillion-dollar rollover IRA scheduled for staged conversions after the notes pay out, and a watch on the rollover equity stake so a surprise exit doesn't collide with a conversion year.
• A Qualified Opportunity Fund investment of about $100,000, chosen on investment merits after due diligence, with the gain deferral treated as a bonus rather than the reason.
• An advice relationship priced by the hour, with the husband still running his own investments and no asset-based fee on a low-eight-figure net worth.

What it cost

See the fee summary at the top of this page. At a typical 1% advisory fee, a portfolio of this size would cost well into six figures every year; the couple paid for the hours used.