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#Bright line date transaction costs code

The date the material terms of the transaction are authorized or approved by the taxpayer’s board of directors (or board committee).

The date the letter of intent, exclusivity agreement or similar written communication is signed by representatives of both the acquirer and the target, or.

Under the bright line date rule, except for “inherently facilitative” costs, an amount paid by a taxpayer in the process of investigating or otherwise pursuing a covered transaction is viewed as facilitating the transaction (and, therefore, must be capitalized) only if the amount relates to activities performed on or after the earlier of the following dates:

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).

A taxable acquisition of an ownership interest in a business entity (whether the taxpayer is the acquirer in the acquisition 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) (e.g., a taxable acquisition by a corporation of 100% of the stock of another corporation) and.

#Bright line date transaction costs code

However, an exception referred to as the “bright line date rule” enables taxpayers to deduct some, but not all, of the transaction costs paid or incurred prior to a specific date in connection with the following acquisitive transactions (referred to as “covered transactions”):Ī taxable acquisition by the acquirer, rather than the target, of assets that constitute a trade or business (e.g., a deemed asset acquisition made with an Internal Revenue Code section 338(h)(10) election)

Treasury Regulation §1.263(a)-5 generally requires the capitalization of amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. Because of the potential materiality of the tax benefits at stake, it is important for taxpayers to properly analyze and document their transaction costs. While transaction costs paid or incurred in connection with many types of transactions tend to be capitalized, the IRS and Treasury have prescribed regulations that can often lead to opportunities for companies to claim a current tax deduction for a portion of the costs related to certain acquisitive transactions. Whether related to an acquisition, merger, restructuring, reorganization, initial public offering or spin-off, the costs paid by companies to service providers such as investment bankers, attorneys, accountants and consultants to investigate and pursue a transaction (“transaction costs”) can be in the millions of dollars. The 2021 tax year saw an uptick in M&A activity, and the trend appears to be continuing. Posted by Jonathan Roller on April 19, 2022

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