FEDERAL INCOME TAX SERVICES
M&A Tax Services
Ⅰ. M&A Tax Due Diligence
Our due diligence practice is extremely thorough in detecting issues that may affect a transaction’s structure or even its viability. Additionally, we have the experience and confidence to know when it is unnecessary to pursue an issue. We are therefore in a position to provide actionable due diligence findings efficiently and promptly.
Our due diligence procedures include income tax compliance validation, analysis of tax assets, evaluation of known and detection of unknown tax liabilities. Our analysis of unknown tax liabilities includes detection of state issues such as nexus, sales and use tax liabilities, property taxes and employment taxes. Those areas often receive inadequate attention, especially in the case of “asset” deals in which federal income tax issues may take on reduced significance.
Due diligence is not only for acquirers. We represent many businesses and investors that are contemplating sales, mergers or taking on new investors. They know that tax due diligence will be performed on their businesses and we help them prepare for that process. We can identify and solve problems before they are found by a buyer’s or investor’s due diligence team. This is not only a convenience; it can materially increase a business’s sale or investment value.
Ⅱ. Transaction Cost Analysis
In significant transactions, especially business mergers, acquisitions, and dispositions, taxpayers incur and pay significant fees related to investment banking/private equity, accounting, legal, valuation and other third-party services to investigate and facilitate these transactions.
Immediate tax savings may exist for fees incurred to investigate transactions while costs incurred to facilitate transactions are generally treated as an asset, capitalized and possibly amortized over the life of the asset.
The IRS and the Treasury Department have issued guidance per Treas. Reg. Sec. 1.263(a)-5. Even with the issuance of this guidance, however, many issues still remain pertaining to the proper tax treatment and documentation regarding the deductibility of these costs.
The IRS, as well as financial statement auditors, has increased their scrutiny and taxpayers must be prepared to defend the deductibility of these transaction costs. Schedule M-3 of the U.S. Corporation Income Tax Return requires taxpayers to disclose current-year acquisition or reorganization costs. In addition, ASC 740-10 (also known as FIN 48) only allows financial statement benefit to be recognized for tax positions with a “more-likely-than-not” comfort level.
We are experts in analyzing the proper tax treatment of transaction costs. Determination requires a deep understanding of the related tax law, court cases and the transaction itself. We are able to obtain the most favorable results when called upon to help plan for transaction costs while a transaction is being structured. However, we have also obtained very favorable results on a post-transaction basis. Deductions may also be claimed for prior years by amending tax returns.
Our work product includes a detailed documentation package containing the materials and analysis required to support the proper tax treatment of transaction costs. With our experience in this area, we provide this service in an efficient and cost-effective manner. If you feel that your business might be entitled to deduct some transaction costs for past or future transactions, please contact us to discuss your situation.
Contact us to learn more
Phone: (714) 434-6700
Fax: (714) 640-8645