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M&A Tax Talk
Insights on trends and recurring matters regarding US tax topics in M&A transactions
M&A often revolves around two organizations charting either a new path together or one that splits apart. Sometimes taking a wider view can be helpful. Our M&A Tax Talk series may help you see the bigger picture for your organization, providing you with insights to move forward with confidence throughout the M&A life-cycle: strategy, readiness, execution, closing, and post-close.
Debt modification tax rules
Given the broad definition of “publicly-traded” under the tax rules, many debt instruments are treated as publicly-traded, including revolvers. This increases the likelihood that a “significant modification” of the debt would result in “phantom income” to the debtor company. If your company is modifying or restructuring existing debt, it is important that an analysis be performed to determine whether a “significant modification” has occurred and whether the debt is “publicly-traded,” as this could result in unexpected income inclusions for tax purposes.
Indirect tax considerations in M&A transactions in a post-Wayfair world
The Wayfair ruling significantly changed when a state requires sales/use tax to be collected by remote sellers. This month we examine how the 2018 Wayfair court decision impacts buyers and sellers involved in M&A transactions. We’ll outline how the court decision impacts the determination of sales tax collection obligations and discuss sales tax considerations that should be addressed by both buyers and sellers.
Representation and warranty insurance
The robust and competitive M&A market has led to an increase in representation and warranty insurance (RWI) policies, which has transformed the M&A process. This month we outline some of the key tax-related issues that RWI addresses, including its ability to protect a buyer against a seller’s breach of representation, and warranties included in an acquisition agreement. In addition, we’ll look at how RWI can help both buyers and sellers speed up – or even eliminate–the escrow process.
Proposed regulations would significantly impact the value of tax attributes following an ownership change
This month, we examine the proposed rule changes that could significantly limit a corporation’s ability to utilize net operating losses (NOLs) and other tax attributes following an ownership change.
Specifically, we’ll examine how these proposed changes could impact an organization’s tax burden and identify some potential actions NOL companies—and buyers of such companies—should consider to ameliorate the negative effects that companies could face following an ownership change.
In January 2020 the IRS issued significant revisions to the applicability date provisions of the proposed section 382(h) regulations.
Divestiture-related tax considerations
If you’ve ever sold a home, you know that preparation is key to achieving the best price. You make minor repairs, upgrade outdated appliances, put on a fresh coat of paint, and stage the home to make it attractive to potential buyers.
In many ways, selling a business is similar, except that your preparation is different. Specifically, it is critical to develop an understanding of the tax work that should be addressed in advance of starting negotiations.
Post-tax reform contracting considerations
With the passage of the Tax Cuts and Jobs Acts of 2017 (TCJA), US taxpayers engaging in acquisitions and dispositions should evaluate additional contracting considerations for proposed transactions.
This is evident when drafting language in letters of intent (LOI) or purchase agreements regarding tax matters including the benefits of immediate expensing of acquired property, inheritance of transition tax liabilities, and how to treat net operating losses (NOLs) in the pre-closing period.
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