Earnout arrangements have important tax implications for both the buyer and seller. This article focuses on the buyer side of the equation.An earn-out works as a mechanism that allows the buyer to defer a portion of the purchase price until the occurrence or failure of a predetermined metric. In short, an earnout provision allows the seller to maintain an interest in the company postclose while the buyer gets a lower purchase price. An earnout allows the buyer to pay a higher potential reward to the seller while simultaneously reducing the buyer's risk. An earnout provision can be utilized if an entrepreneur seeking to sell a business is asking for a price more than a buyer is willing to pay. An earnout is a form of contingent, deferred consideration that is often utilized to reconcile a difference of opinions between the buyer and the seller. An earnout is a negotiated payment arrangement over time between a buyer and seller. The seller agrees to receive at least part of the purchase price. An earnout provision makes the purchase price (typically, some part of it) payable in the future dependent on the buyer's financial performance.