M&A Tax Talk: Navigating M&A during a recession

Tax implications of in-court and out-of-court debt restructurings

October 2020

A distressed company considering a restructuring or change in capital structure should consider the various tax implications of such proposed restructuring, including whether the restructuring occurs as part of a Title 11 bankruptcy filing or not. This article identifies common tax issues that a distressed corporation should carefully evaluate when considering restructuring alternatives.

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Carve-out of financial statements

September 2020

When a corporate parent orchestrates a carve-out, spin-off, or sale of a portion of its business, the execution team may be responsible for preparing carve-out financial statements. Regardless of a company’s divestiture hypothesis, early and continuous involvement of tax professionals in preparation of carve-out financial statements will help to facilitate a successful process. This article examines some of the income tax considerations when preparing carve-out statements and presents pragmatic steps to address this complicated area of financial reporting.

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Abandoned transactions

August 2020

Due to economic uncertainty, many types of M&A transactions are being abandoned. As part of pursuing a transaction, businesses may incur a wide range of costs, some of which may be deemed facilitative of the transaction and are generally required to be capitalized. However, if a transaction is determined to be abandoned, the taxpayer may be allowed an abandonment loss for these costs. Before taking an abandonment loss, there are many important factors a taxpayer should consider.

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Economic disruption and tax losses: restructuring businesses at depressed valuations

July 2020

In today’s uncertain economy, business valuations have declined, and tax planning has been redirected. Business restructurings may be less focused on transactions that reduce taxable gain and more focused on the impact of unrealized tax losses. This article outlines approaches that highlight the importance of tax consequences in corporate restructurings, especially for taxpayers with unrealized tax losses.

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Tax considerations when selling a subsidiary out of a consolidated group

June 2020

Today’s economic uncertainty is driving many companies to divest of underperforming businesses to help identify potential tax cash flow. Given the depressed values of businesses, sellers are looking to increase returns by structuring sales to help reduce taxes and increase the utilization of existing tax attributes while also identifying tax benefits for potential buyers. While corporate divestitures often present numerous complicated tax considerations, special rules can apply when unwanted businesses are held alongside other wanted businesses in a single tax-consolidated group.

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Addressing payroll and employment tax considerations under the CARES Act

June 2020

The CARES Act provides employers of all sizes with potential options to address liquidity concerns through payroll and employment-related tax provisions. These options include a refundable tax credit connected to employee retention and the ability to defer the payment of employer Social Security payroll taxes. While providing liquidity, these tax provisions may lead to issues that should be addressed in each transaction.

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Can a business be brought out of corporate solution tax-free? A Reverse Morris Trust transaction may be the only answer

May 2020

In the world of taxation for business entities, a single level of taxation is ideal. Unlike “flow-through” entities, a C corporation generally results in two levels of taxation. These distinct levels of taxation apply to both operating income and income gained from the disposition or distribution of assets held by the C corporation. Accordingly, C corporations have been compared to lobster traps: Easy to enter and painful to get out of. To bust the corporate lobster trap, a Reverse Morris Trust (RMT) transaction may be the only answer.

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Tax sharing agreements help address tax refunds for consolidated groups

May 2020

Recent developments have highlighted the importance for consolidated groups to have a tax sharing agreement (TSA) in place that clearly and explicitly addresses the question of which member of the group is entitled to a refund of previously paid income taxes. Such developments include the enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the recent US Supreme Court decision in Rodriguez v. FDIC.

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Tax-free spin-offs for pre-revenue businesses

April 2020

The tax-free spin-off rules provide the ability for a corporation to separate its businesses without corporate or shareholder-level tax. However, pre-revenue businesses were generally excluded from these types of transactions because of their inability to satisfy the “active trade or business requirement” (ATOB) to obtain tax-free treatment. However, under new guidance, this may no longer be the case, opening the door for more businesses to engage in these types of transactions.

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Protecting tax attributes in an uncertain environment

April 2020

The increased likelihood of companies generating net operating losses (NOLs), coupled with depressed stock prices for those companies resulting from recent economic disruptions, has caused companies’ executives and tax professionals to consider implementing defensive measures, such as stock transfer restrictions or “poison pills,” to protect NOLs and other tax attributes from the adverse impacts of an “ownership change.”

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