![]() Financial statements of an acquisition company may exclude the target's pre- transaction income statement or balance sheet leading up to the close, leaving a "blackout" period that is not reported. Topic 805 will result in a reset of the target's balance sheet to fair value. Additional analysis is necessary when the acquisition company's financial statements apply FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations. There may be nonrecurring differences in GAAP versus tax- basis income ( book- tax adjustments) resulting from the transaction. Taxable income should be calculated for the pre- and post- transaction periods if there are corresponding short tax periods, income should be split between the periods. CALCULATION OF TAXABLE INCOME: COMMON CHALLENGES For example, the purchase of 100% of a partnership is a purchase of assets from a buyer's perspective while, at the same time, this purchase terminates the partnership on the acquisition date (see Rev. However, there are exceptions, including a deemed asset purchase. 1502- 76(c)).įor a straight asset purchase, buyer and seller tax years generally do not terminate. If the acquirer and target both have adopted a calendar year for federal income tax purposes, the due date of the pre- transaction short period could be extended until the due date of the acquirer's consolidated return (see Regs. If a short period applies, it is important to determine the due dates in each period. When a consolidated return will be filed after the acquisition, the target's separate- return tax year terminates at the end of the day that its status as a member of the group changes (see Regs. Often, the buyer will incorporate an eligible acquisition company to facilitate the purchase of the target and form the new consolidated group ("new group"). Consolidation is elective by each subsidiary and is permitted if the acquirer is an eligible common parent. A common consideration in M&A transactions is whether the transaction results in short- period tax filings to split the pre- and post- transaction periods.įor C corporation stock acquisitions, the tax year will generally terminate if the target is joining a new consolidated tax filing. If a transaction involves multiple target entities or changes in entity classifications, there could be a mix of carryover basis and asset step- up events and, potentially, taxable gain/loss events. 338(g) election is filed (at a tax cost to the acquirer). The acquisition of stock of a corporation can be treated as an asset purchase if a Sec. The purchase of the stock of an S corporation or a subsidiary of a consolidated group can be treated as an asset purchase if a joint Sec. For example, the purchase of 100% of a partnership or disregarded entity (e.g., a limited liability company) will be treated as an asset purchase. Certain ownership interest acquisitions can be treated as the purchase of assets. The purchase of assets generally results in a step- up in the asset basis as the acquirer receives basis equal to the consideration paid and liabilities assumed. However, the target's assets carry over at their historic tax basis ("carryover basis," or "inside basis") the tax attributes (losses, credits, etc.) also carry forward but may be subject to certain limitations.Īsset-basis revaluation to fair value: An asset acquisition is the purchase of the assets of a business instead of the stock. An acquirer will receive a tax basis in the stock acquired ("outside basis") equal to the consideration paid. Stock-basis carryover: A stock acquisition generally refers to the acquisition of the ownership interest in a C corporation (or S corporation). ![]() There are two general taxable transaction forms-the stock deal and the asset deal. It is important to review the legal entity organizational chart before and after the acquisition. ![]() The first step is to understand the form of the transaction by reviewing the merger/purchase agreement as well as the relevant transaction step plan or memorandum. Implications for state and local, foreign, and other federal taxes (i.e., franchise, sales, employment, and property tax) should also be reviewed but are not within the scope of this article. federal income tax implications and challenges that the tax compliance team will have to address. When the transaction is complete, it is common for the M&A tax consultants to step back, and the engaged tax compliance adviser or industry tax director becomes responsible for correctly reflecting the income tax considerations of the M&A transaction in the tax returns. ![]() Since each transaction can result in unique tax issues, a one- size- fits- all approach rarely applies. Accounting for merger and acquisition (M&A) activity is a common challenge for tax compliance professionals. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |