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The primary concern to taxpayers incurring transactions costs in an M&A transaction is the ability of the taxpayer to receive a deduction for the costs.
Secondarily, although also significant, taxpayers are concerned about the timing of the deductions.
Merger and Acquisition Transaction Costs: Who Gets the Benefit?
Prepared by: Nick Gruidl, CPA, MBT Managing Director Washington National Tax RSM Mc Gladrey, Inc Natalie Tucker, CPA, MST Director Washington National Tax RSM Mc Gladrey, Inc Private Equity Funds (PEFs), strategic acquirers and targets incur various costs in merger and acquisition (M&A) transactions.
The focus of this article is the treatment of transaction costs associated with professional services.
Certain special rules (e.g., Sections 83 and 404, the next day rule of Reg (b)(1)(ii)(B), etc.) can affect the timing of these deductions, but they are beyond the scope of this article.2 Whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances of the case.3 Reg (a)-5(b)(1) clarifies that an amount paid to determine the value or price of a transaction is an amount paid in the process of investigating or otherwise pursuing that transaction.A taxable acquisition of an ownership interest in a business entity (whether the taxpayer is the acquirer or the target of the acquisition) if, immediately after the acquisition, the acquirer and the target are related within the meaning of Section 267(b) or 707(b) 3.A reorganization described in Section 368(a)(1)(A), (B) or (C) or a reorganization described in Section 368(a)(1)(D) in which stock or securities of the corporation to which the assets are transferred are distributed in a transaction that qualifies under Section 354 or 356 (whether the taxpayer is the acquirer or the target in the reorganization) 4 2 Acquisitive transactions are subject to two additional rules, the bright line date rule and an inherently facilitative rule.