Merger, Acquisition and Divestiture Services
Mergers and acquisitions are often complex transactions that give rise to many tax issues. Foremost is whether the transaction itself is taxable, tax-free or partially tax-free. Transactions can be structured as asset sales, stock sales or mergers – each bringing about its own challenges and rewards. What often can get overlooked are the ancillary tax implications of the deal: Its impact on attribute carryforwards, transaction costs, golden parachutes and other compensation triggered by the deal. In addition, leveraged acquisitions might impact the deductibility of interest.
Areas that clients typically focus on as they navigate various tax issues during a deal include:
Due Diligence Services
Our EisnerAmper Corporate Tax group provides due diligence services which include buyer (or seller-side) investigations into any unreported federal, state, or international tax liabilities. In addition, we provide advice as to the optimal structuring of acquisitions or dispositions.
For years, the deductibility of success-based investment banking fees has been a source of controversy. How do you allocate it under the “bright line” tests? The IRS has issued Rev. Proc. 2011-29 in which it reversed a previous position and now allows 70% of success-based fees to be deductible without the need for any particular documentation.
Questions to consider:
- What fees qualify?
- What transactions do they apply to?
- What is the tax treatment for non-success based fees?
- What are the different tax treatments related to the target and the acquirer?
- What are the rules to transactions that closed before the effective date of the Revenue Procedure?
- What is the treatment of the transactions costs that must be capitalized?
Restrictions on Net Operating Loss and Other Tax Attribute Carryovers
IRC Section 382 places restrictions on the amount of net operating losses (NOL) and other tax attributes that could be carried over to succeeding tax years. These restrictions can significantly impact the amount and timing of the carryovers. Typically studies are done with respect to the movement of 5% shareholders and these go back to the first day of the first year for which carryovers have originated. When the change occurs the limitation is based upon the value of the loss corporation multiplied by the long-term tax exempt rate.
Some things to consider are:
- What is the impact of multiple classes of stock?
- Are there ways to increase the limitation?
- What is the impact on credit carryovers?
- How is value determined?
- What is the impact of less than 5% shareholders?
- What is the impact to the balance sheet?