Do Taxes Matter?
Mergers and Acquisitions (“M&A”) are complex, multilayered, excitingly negotiable with endless options. M&A transactions present numerous tax planning and compliance issues. Below are tax considerations that appear repeatedly in middle market deals and only serve as a starting point for delving into more intricate and tedious tax issues:
- Structure – most commonly used structures are asset or stock purchases
- Reorganizations – tax-free reorganizations are subject to a myriad of IRS requirements
- Purchase price allocations – allocation to assets that generate capital gains versus or ordinary income tax rates
- Tax treatment of earnouts
- Installment elections available
- Gifting prior to sale
- Reinvesting after the sale
- State and local tax (“SALT”) implications – vary from state to state and include income, sales and use, excise, gross receipt taxes, registration or licensing fees and successor liability for unpaid taxes
M&A transactions require delicate tax planning and negotiation on a deal by deal basis to ensure that the represented party receives optimal tax treatment at closing. Identifying areas of potential tax exposure and implementation of specific tax strategies should begin in the first stages of planning for a transaction.