Acquisition involves extensive due diligence. Evaluation is more than just looking at the financial reports, but legal, operational, and cultural assessments too.

Estimating intangible assets is subjective and subject to dispute which can lead to tax reversals that affect deductions. Furthermore, the form of any transaction – acquisition of assets or acquisition of stock – has tax consequences as well.

Deferred Taxes

Tax planning is very important for M&A deals because the tax deferral will influence the amount and timing of any transaction gains or losses.

When you purchase something that has net operating losses (NOLs), for example, closing before the rules modify capital gains rates will allow companies to deduct the NOLs in future taxes. Besides, you can purchase foreign companies with GILTI Foreign Tax Credits that you might use to offset future income (buy it before the new government rules dictate your ability to use them).

For nontaxable business combination, contingent consideration must be reflected on the outside tax basis of the purchased shares for any book/tax basis difference. The short-term variations following settlement should be reflected as deferred tax assets and liabilities, according to accounting standards.

Taxable Gains or Losses

Deal structure: M&A deals can be tax deductible, or tax deferred depending on how they are capitalized. The acquisition of a capital asset can lead to a big increase in the basis of that asset and thus majorly change the deductions for depreciation and amortization.

It’s taxed to the core when valuing things that you cannot physically see such as goodwill, and due diligence of deferred taxes is a key aspect of making sure you know what a deal really costs.

Deals with M&A typically involve state and local tax issues, such as sales and transfer taxes, and nexus problems in new states. Corvee’s tax planning software can help you model M&A effects for each state and local jurisdiction, characterize transaction costs (legal fees, due diligence costs, acquisition-related costs, etc.) It can even help in the evaluation of tax-free reorganizations options like Section 368 options as part of an M&A transaction option.

Post-Acquisition Workforce Restructuring

Restructuring the workforce is a part of M&A deals. Clearing the clutter of useless products and employees is vital for driving productivity and profit but cuts in workforce can make employees stressed, which in turn decreases performance – you need to be clear with workers on this transitional period and support them.

Tax lawyers can help you organise the merger or acquisition to lower taxes. In asset purchases, buyers get special tax advantages and for stock purchases, ordinary income benefits for the seller. Moreover, there are some mergers that might also qualify as tax-free reorganizations structures but this should be reviewed before proceeding.

Also, SALT should be considered during merger and acquisitions because it’s a huge part of the picture. By tax planning you can avoid paying for something unexpected and remain compliant with payroll taxes. Furthermore, it is also very important to check if there are any foreign tax policies such as withholding tax, transfer pricing agreements, tax treaties or treaty-type arrangements and their effect.

Tax-Efficient Structures

The tax consequences of an M&A transaction are sometimes substantial and a great deal depends on its structure; was it a stock or asset acquisition and how was the purchase price distributed? There are additional issues, such as salary and benefits package, payroll integration and State and local taxes (SALT) are sometimes also a big deal when operating in multiple states.

With an asset acquisition, purchasers can get higher basis in acquired assets to market value thereby getting more depreciation deductions and lower taxation on subsequent asset disposals. Buyers can also pay close attention to tax assets like net operating losses (NOLs) or tax credits that could help offset future taxable income but are subject to some restrictions; Corvee’s tax modeling tools can help buyers assess the value of these tax assets.