Tax Structure and Strategy

This chapter focuses primarily on federal income tax laws that impact how merger and acquisition (M&A) transactions for closely held or privately held companies are structured; however, fully understanding and evaluating the complete tax consequences of an M&A transaction is beyond the scope of this content.a It is not the goal of this chapter to educate one to become a tax expert, but rather to highlight the most common tax structural elements encountered by an M&A advisor in a typical middle market deal as illustrated in Figure 12.1. At the end of this chapter is a short “Tax Glossary” to provide additional clarification about some of the key concepts.

Understanding the tax attributes and the impact of taxes on an M&A transaction is important for a number of reasons:

  • Federal and state income taxes resulting from a sale transaction can become as much as 50 percent of the transaction value. Selection of the transaction structure can result in significant differences in the tax liabilities of all of the parties of the deal. Think of the federal government as a silent partner in the deal.
  • Often, sellers will not engage their tax accountant during the negotiation of a transaction, even though this is the time when these structural decisions are typically made. It becomes necessary for the M&A advisor to identify and understand the structural elements that impact taxes and to have an understanding of when to seek outside tax counsel.
  • In negotiations, ...

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