Section 197 governs the shield: all Class VI and VII intangibles — customer lists, non-compete, workforce, going-concern goodwill, trademarks, licenses — amortize 15-year straight-line. The arithmetic is clean: $1M allocated to Class VI or VII produces $66,667 of amortization a year for 15 years, totaling $1M of deductions. What that deduction is worth depends on the buyer's tax rate, and that's where the shield diverges sharply between entity types — the same allocation produces a very different after-tax outcome for a C-corp than for a pass-through.
§ 01 · The shield per millionTwo entity rates.
| Buyer entity | Annual shield / $1M | Present value / $1M |
|---|---|---|
| Corporate (21%) | ~$14K × 15 yr = $210K | ~$107K — 10.7% of the allocation |
| Pass-through (37%) | ~$24.7K × 15 yr = $370K | ~$187K — 18.75% of the allocation |
Roll that up to a typical deal where 80% of the price goes to intangibles, and the present-value tax shield lands at 8–15% of purchase price. On a $3M acquisition, that's a $257K shield for a corporate buyer (80% × 10.7%) or $450K for a pass-through (80% × 18.75%). The shield is real money that the buyer should fold into the price it's willing to pay — it changes the rational maximum bid, and it changes it differently depending on who's bidding.
§ 02 · The entity-rate gapWhy pass-throughs bid more.
A pass-through buyer captures 50–60% more after-tax value than a C-corp on the same deal — entity choice is itself a tax-shield decision. The after-tax cost is the pre-tax price minus the present-value shield: a $3M acquisition costs a corporate buyer (21%) about $2.66M after tax, an 11% saving, but costs a pass-through (37%) about $2.40M, a 20% saving. The same book is worth materially more to the higher-rate buyer.
The worked example sits behind the axiom: a $3M acquisition with Class III at $150K, Class V at $200K, and Classes VI/VII at $2.65M produces a $343K shield for the corporate buyer and a $603K shield for the pass-through. The gap isn't a rounding difference — it's structural, driven by the rate the deduction is taken against, and it means the same listing rationally supports a higher bid from a pass-through acquirer. A buyer modeling its maximum price without folding in the entity-specific shield is leaving the most quantifiable piece of the deal economics out of the number.
§ 03 · The four allocation movesMaximizing the shield.
Four strategic allocation moves maximize the shield. Maximize Class VI over Class III — exclude receivables when possible and shift price to amortizable intangibles, because Class III (accounts receivable) gets no amortization, only cost recovery at collection. Support the non-compete in the 5–15% market range — below 5% leaves tax value on the table, above 15% invites audit risk. Allocate workforce-in-place when it exists, at 3–8% of price. And use appraisals on deals over $2M — a $5K–$15K appraisal cost preserves roughly 10× its value in tax shield. Class V tangibles run their own schedules (seven years for furniture, five for equipment and vehicles, fifteen for most leasehold improvements, three for software), and bonus depreciation gives short-life assets an immediate deduction — though the bonus phases down: 60% in 2026, 40% in 2027, 20% in 2028.
§ 04 · Recapture and the exitThe long-hold caveat.
The shield has a tail that matters for buyers planning an eventual exit. On Class V tangibles, Section 1245 recapture means a subsequent sale taxes accumulated depreciation at ordinary-income rates up to the depreciation claimed — deferred for long-hold buyers but material for anyone planning a resale. On Section 197 intangibles, partial recapture on disposition means proceeds above the remaining basis split into ordinary income (for the amortization-attributable portion) and capital gain (for the excess above the original allocation), which factors into exit modeling for platform and private-equity buyers. None of this diminishes the shield's value during the hold; it just means the buyer who plans to flip the book should model the recapture into the exit, not just the amortization into the hold — the shield is a hold-period benefit with a disposition-period cost, and a complete model carries both.
◆
Terminology on this shelf
- Section 197 amortization
- The 15-year straight-line write-off of Class VI and VII intangibles — the core of the tax shield.
- Present-value shield
- The discounted value of the deduction stream — ~10.7% of allocation at 21%, ~18.75% at 37%.
- Entity-rate gap
- The 50–60% more after-tax value a pass-through captures versus a C-corp on the same deal.
- After-tax cost
- Pre-tax price minus the present-value shield — the real economic cost of the acquisition.
- Bonus depreciation
- The immediate deduction on short-life assets — phasing down 60%/40%/20% across 2026–2028.
- Recapture
- The ordinary-income tax on accumulated depreciation/amortization at disposition — an exit-model item.