Empowering your M&A decisions through strategic tax insights and essential corporate legal services.

There are two elements to a transaction that require specific knowledge and industry know-how.  (1) What is the impact of a transaction? (2) How do I negotiate and what are the industry norms that come from the items impacting the transaction?  Our team works on hundreds of deals a year; whereas most tax return preparers will do no more than a small handful.  Having this skill set in your corner can have a significant impact on both your after-tax cash proceeds as well as the timing required to close your transaction. 

Yes.  Buy-side tax diligence is intended to minimize the risk of historical tax exposure that the buyer assumes under successor liability rules.  While a pure asset deal reduces the amount of exposures that may be assumed, there are still significant tax liabilities that would follow the assets in this type of transaction; most notable are sales tax exposures.

In transactions other than the acquisition of C corporation stock, it is generally expected that the transaction will be completed in a way that achieves a tax basis step-up on the assets of the business.  This means that the buyer gets to “step-up” the tax basis of the assets to fair value.  The fair value, in this context, is often a deal negotiation point.  Typically, and depending on the industry, one of the more impacted assets that is stepped-up in a transaction is Goodwill and other intangibles.

It depends.  In an auction process, it is not uncommon for the sellers to advise prospective buyers to consider the value of the tax basis step-up in determining their enterprise value and proposed purchase terms.  (Sellers will often provide a model or similar tool to assist potential buyers in this evaluation).  Outside of the auction process, some buyers work with sellers to make them whole from the impact of the asset sale treatment; whereas other buyers take the position that their proposed purchase price is the total consideration to be paid (and any benefits they may be receiving are already included in the agreed enterprise value).  It is important to have open discussions with your advisors and attorneys (before signing the LOI) to determine what approach works best in your situation.

No, not without additional transaction structuring being completed.  The purchase of an S corporation is treated as the purchase of a corporation for tax purposes.  If you are not a qualified S corporation shareholder, then the acquisition will result in the target being a C corporation immediately following the transaction.  However, structuring an S corporation into an asset purchase (for tax purposes) is simple and is regularly completed in almost all transactions.  This is usually done through either (1) a 338(h)(10) election (if the transaction otherwise qualifies) or (2) an F reorganization.  In certain situations, especially where there is concern over the historical qualification of the S corporation as an S, certain structures may be preferred to minimize the buyer’s exposure.

If you are planning on getting Reps & Warranties insurance (RWI) as part of the purchase of a company, the insurer will look to your diligence service providers to scope and identify any exclusions to the policy.  As a result, if RWI is going to be obtained, we advise buyers that full scope tax diligence will be requested, and will need to be completed prior to close, regardless of the transaction structure.  Our team often works with buyers and their insurers to address any tax related matters that arise through this process. 

Typically, no.  In most sales of a C corporation, a buyer will not pay additional amounts for deductions, NOLs or other tax attributes that it may be able to realize in a future tax period. There are exceptions, usually due to unique circumstances or opportunistic buyers in an auction process; notwithstanding, it is helpful to include this in the negotiation process (which also requires an understanding of the impact of the transaction on the specific tax attributes, such as any NOL limitations that may apply).