This session will look at advancements in M&A tax structuring including methods for maximizing the seller’s after-tax benefit, while minimizing the buyer’s after-tax burden; techniques for analyzing the impact of tax elections; how to assess tax issues in private equity transactions; and a look at ways to navigate new regulatory considerations that may impact acquisition timing and strategy.
The presentation will highlight best practices for structuring rollover equity and minimizing tax issues. Key topics also will include tax consequences of using LLCs versus C Corporations (i.e., tax-free rollovers); negotiating preferred versus common stock, and shareholder or member rights and obligations; and employment agreements and non-competition covenants.
Bournemouth - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Negotiating Reverse and Forward Triangular Mergers Roger Royse
Overview
(1) What is a forward/reverse triangular merger?
(2) Legal steps to follow
(3) Anti-assignment clauses
(4) Benefits of triangular mergers
(5) Forward vs. reverse
Taunton - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
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Today’s uncertain economic environment, coupled with the tightening of available capital from venture capital funds, has marked the return of a dangerous price protection device: “full ratchet” anti-dilution. This device, generally included in the terms of preferred stock issued to new investors, seeks to protect those investors from being diluted by a subsequent financing at a lower valuation — the so-called “down round” — by causing an adjustment to the applicable conversion rate for the preferred stock.
The presentation will highlight best practices for structuring rollover equity and minimizing tax issues. Key topics also will include tax consequences of using LLCs versus C Corporations (i.e., tax-free rollovers); negotiating preferred versus common stock, and shareholder or member rights and obligations; and employment agreements and non-competition covenants.
Bournemouth - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Negotiating Reverse and Forward Triangular Mergers Roger Royse
Overview
(1) What is a forward/reverse triangular merger?
(2) Legal steps to follow
(3) Anti-assignment clauses
(4) Benefits of triangular mergers
(5) Forward vs. reverse
Taunton - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Anti-Dilution (Investor's Right Protection) - hu consultancyHU Consultancy
Today’s uncertain economic environment, coupled with the tightening of available capital from venture capital funds, has marked the return of a dangerous price protection device: “full ratchet” anti-dilution. This device, generally included in the terms of preferred stock issued to new investors, seeks to protect those investors from being diluted by a subsequent financing at a lower valuation — the so-called “down round” — by causing an adjustment to the applicable conversion rate for the preferred stock.
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- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
Under the 2017 Tax Cuts and Jobs Act, Qualified Business Income can make converting to or from a C-Corporation attractive depending on whether business objectives involve liquidation, cash distributions, or reinvestment of earnings.
purchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction.
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Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Here we are trying to list the taxation and accounting implications for a typically Demerger of companies.
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Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
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Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Dijital dünyada olmalı mıyız?
Sosyal medyayı nasıl etkin kullanabiliriz?
Dijitalde fark yaratabilir miyiz?
Oyun tabanlı eğitim ve Gamification ile dijital gücümüzü arttırabiliriz.
Alternative Structures for Life Sciences Companies: The LLC Holding CompanyWilmerHale
Explores the following:
- Establishing the LLC Holding Company
- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
Under the 2017 Tax Cuts and Jobs Act, Qualified Business Income can make converting to or from a C-Corporation attractive depending on whether business objectives involve liquidation, cash distributions, or reinvestment of earnings.
purchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction.
Exeter - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Here we are trying to list the taxation and accounting implications for a typically Demerger of companies.
The Implications are studied for Resultant and the Demerged Company
The purpose of this document is to outline the background to purchase price allocation, the process as well as commonly used methodology in valuing intangible assets
Plymouth - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Bodmin - Essential 6-monthly Finance Directors' Update - November 2017PKF Francis Clark
Our six-monthly Finance Seminars provide an overview of the most important technical developments in financial reporting and taxation. The seminars address the key topical financial matters, the opportunities they present, how they affect your business and the pitfalls you can avoid.
Following the brief look at cyber security during our last round of events, our cyber team will be examining the issues we are finding in practice from the work we are doing with clients. We will also assess the impact of the upcoming GDPR legislation coming into force on 25 May 2018.
Dijital dünyada olmalı mıyız?
Sosyal medyayı nasıl etkin kullanabiliriz?
Dijitalde fark yaratabilir miyiz?
Oyun tabanlı eğitim ve Gamification ile dijital gücümüzü arttırabiliriz.
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Oyun, Oyuncak, Oyunlaştırma gibi kavramları irdeleyeceğiz
Oyunlaştırma nedir? Ve ne işimize yarayacak?
Neden oyun tabanlı eğitim?
Oyun tabanlı eğitim öncesi analiz nasıl yapılır?
Oyun tabanlı eğitim çeşitleri
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Affordable and Best DNA Testing in India.DNA Forensics Laboratory offers fully accredited DNA testing services anywhere in the India and internationally with affordable cost and 100% accuracy.
Delivered to the Columbus chapter of the Society of Financial Service Professionals on April 13, 2017 by Kegler Brown's Tom Sigmund and Ted Lape of Lazear Capital Partners, this presentation defines and discussed the benefits of an ESOP (an employee stock ownership plan).
Although this presentation covers the basics of an ESOP, it details what they are used for, ESOP transactions, who is a good candidate, tax benefits, and ongoing ESOP considerations.
NATURE, ORIGIN AND DEVELOPMENT OF INTERNATIONAL LAW.pptxanvithaav
These slides helps the student of international law to understand what is the nature of international law? and how international law was originated and developed?.
The slides was well structured along with the highlighted points for better understanding .
A "File Trademark" is a legal term referring to the registration of a unique symbol, logo, or name used to identify and distinguish products or services. This process provides legal protection, granting exclusive rights to the trademark owner, and helps prevent unauthorized use by competitors.
Visit Now: https://www.tumblr.com/trademark-quick/751620857551634432/ensure-legal-protection-file-your-trademark-with?source=share
ALL EYES ON RAFAH BUT WHY Explain more.pdf46adnanshahzad
All eyes on Rafah: But why?. The Rafah border crossing, a crucial point between Egypt and the Gaza Strip, often finds itself at the center of global attention. As we explore the significance of Rafah, we’ll uncover why all eyes are on Rafah and the complexities surrounding this pivotal region.
INTRODUCTION
What makes Rafah so significant that it captures global attention? The phrase ‘All eyes are on Rafah’ resonates not just with those in the region but with people worldwide who recognize its strategic, humanitarian, and political importance. In this guide, we will delve into the factors that make Rafah a focal point for international interest, examining its historical context, humanitarian challenges, and political dimensions.
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Victims of crime have a range of rights designed to ensure their protection, support, and participation in the justice system. These rights include the right to be treated with dignity and respect, the right to be informed about the progress of their case, and the right to be heard during legal proceedings. Victims are entitled to protection from intimidation and harm, access to support services such as counseling and medical care, and the right to restitution from the offender. Additionally, many jurisdictions provide victims with the right to participate in parole hearings and the right to privacy to protect their personal information from public disclosure. These rights aim to acknowledge the impact of crime on victims and to provide them with the necessary resources and involvement in the judicial process.
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
In 2020, the Ministry of Home Affairs established a committee led by Prof. (Dr.) Ranbir Singh, former Vice Chancellor of National Law University (NLU), Delhi. This committee was tasked with reviewing the three codes of criminal law. The primary objective of the committee was to propose comprehensive reforms to the country’s criminal laws in a manner that is both principled and effective.
The committee’s focus was on ensuring the safety and security of individuals, communities, and the nation as a whole. Throughout its deliberations, the committee aimed to uphold constitutional values such as justice, dignity, and the intrinsic value of each individual. Their goal was to recommend amendments to the criminal laws that align with these values and priorities.
Subsequently, in February, the committee successfully submitted its recommendations regarding amendments to the criminal law. These recommendations are intended to serve as a foundation for enhancing the current legal framework, promoting safety and security, and upholding the constitutional principles of justice, dignity, and the inherent worth of every individual.
DNA Testing in Civil and Criminal Matters.pptxpatrons legal
Get insights into DNA testing and its application in civil and criminal matters. Find out how it contributes to fair and accurate legal proceedings. For more information: https://www.patronslegal.com/criminal-litigation.html
PRECEDENT AS A SOURCE OF LAW (SAIF JAVED).pptxOmGod1
Precedent, or stare decisis, is a cornerstone of common law systems where past judicial decisions guide future cases, ensuring consistency and predictability in the legal system. Binding precedents from higher courts must be followed by lower courts, while persuasive precedents may influence but are not obligatory. This principle promotes fairness and efficiency, allowing for the evolution of the law as higher courts can overrule outdated decisions. Despite criticisms of rigidity and complexity, precedent ensures similar cases are treated alike, balancing stability with flexibility in judicial decision-making.
Methods for Maximizing Value in M&A Tax Structures
1. Methods for Maximizing
Value in M&A Tax
Structures
Saul Rudo
Katten Muchin Rosenman LLP
Chicago
David Sterling
RMS US LLP
Chicago
2. 1
Agenda
Building Blocks to Structure Transactions
• Entity characterization of Target and Buyer
• Tax attributes of Target and Buyer (and planning for “step-up” in tax
basis and transaction tax deductions)
• Post-closing operating projections
• Planning for the next exit
Buying or Selling an LLC
Buying or Selling an S Corp
Buying or Selling a C Corp (stand-alone or out of
consolidated group)
Recent / Pending Developments
3. 2
Building Blocks to Structure Transaction
Entity Characterization and ownership of Target and Buyer
• LLC
− Owned by taxable individuals and trusts, US Corps (blockers or public),
US tax-exempts (governmental or private), foreigners (taxable or tax-
exempt)?
• S Corp
− Former C Corp with built-in-gains?
− Owned by taxable person and trusts or ESOP?
• C Corp
− Standalone or US consolidated income tax group (federal and state
income tax)
− Owned by taxable US persons, tax-exempts and/or foreigners (taxable or
tax exempt)?
4. 3
Buying or selling LLC
Tax attributes of Target and Buyer
• Target LLC
− Owned by taxable individuals and trusts, US Corps (blockers or public), US tax-
exempts (governmental or private), foreigners (taxable or tax-exempt)?
− High or low tax basis in assets?
− Ordinary income producing assets on sale?
− Cash basis? Deferred revenue?
− Transactions tax deductions (CIC and/or annual bonuses, options, investment
banking fees)?
− State tax consequences (entity vs owner taxation)?
− LLC owners’ tax attributes (Corp NOLs, tax-exempt governmental agency or
pension or private pension, foreigner’s home country tax rates and home country
FTC position)?
• Buyer
− PE Firm (using blocker Corp, AIV, or LLC)?
− Closely-held business (LLC, S Corp (with built-in-gains), C Corp)?
− Strategic (i.e., public C Corp, Up-C, or PE portfolio company)?
5. 4
Sellers
100% LLC Interests
Sellers
80% Class A Participating Preferred Units
20% Class B Participating Preferred Units
Tax Free Recapitalization
Target
LLC
Target
LLC
PE Firm or other buyout of controlling interest of LLC – Step 1
The Target LLC recapitalizes its outstanding equity interests to 80% Class A
Participating Preferred Units with a senior liquidation preference and Class B
Participating Preferred Units, which may stand behind the Class A Units on
liquidation and perhaps other distributions. Participating Preferred Units
generally have a liquidation preference and a preferred return preference at
about 8% over management’s profits interests.
6. 5
Sellers
80% Class A Participating Preferred Units
20% Class B Participating Preferred Units
Target
LLC
Buyer
$$$
All Class A Units
PE Firm or other buyout of controlling interest of LLC – Step 2
The Buyer purchases all of the issued and outstanding Class A Units
from the Sellers.
7. 6
PE Firm or other buyout of controlling interest of LLC – Final Structure
Notes:
• Depending on the assets of the Target LLC, the Sellers may recognize both capital gains and ordinary income (i.e., depreciation or amortization recapture), so
sellers would typically like to control purchase price allocation.
• The Buyer will want the Target LLC to make a Code §754 election if there is appreciation in the Target LLC’s assets (and may increase the purchase price as
a result of such election to reflect future amortization or depreciation deduction). In 100% LLC interest or asset purchase, 100% tax basis step-up.
• The Sellers will likely be subject to state income tax on sale of LLC interests, based on their residence.
• Even if the Target LLC was formed before 1993, there should not be anti-churning issues because partnership interest sold
• Debt financing at the LLC level may cause part of the acquisition to be taxed as a redemption or other distribution, which would generate a tax basis
adjustment inside the partnership which would likely be shared by the partners (rather than the tax basis adjustment generated by an equity purchase, which
belongs to the purchaser).
• Retention of the LLC structure provides a single level of tax for rollover and some AIV investors (i.e., increase in tax basis of equity for share of after-tax
earnings and potential increased purchase price on future sale of the business or potential for Up-C IPO).
• Transaction deductions paid for by seller “pushed” into last LLC tax return so sellers may have tax arbitrage.
• Although buyer may inherit historic tax risks of Target, entity taxes usually not material.
• Determine whether Target is cash basis or has deferred revenue – may result in future tax liabilities (e.g., taxable income realization in the future) without
corresponding cash recouped and thus decrease purchase price.
Sellers
20% Class B Participating
Preferred Units
Target
LLC
80% Class A Participating
Preferred Units
Buyer
(C Corp, AIV, LLC)
Management
8. 7
Umbrella partnership with public C corporation
UP-Cs (a/k/a “Pubcos”) generally used to take public non-REIT-eligible
flow-through entities
Avoid entity-level tax on earnings allocable to the sponsors while
providing liquidity through exchange rights for public stock
9. 8
Umbrella partnership C corporations
Traditionally, sponsors transfer business assets to OP in a nontaxable
exchange for OP units or hold OP units from prior acquisitions
Newly formed PubCo issues shares to the public and transfers
proceeds to the OP in exchange for a managing interest in the OP
Sponsors may receive non-economic voting shares in the Pubco.
10. 9
Up-C Tax Benefits
Interests in OP held directly by sponsors not subject to corporate tax
PubCo receives a step-up in basis upon sponsors’ exchanges of OP
units for PubCo shares
Benefit (i.e., 85%) of the step-up often paid over to sponsors under a
tax receivable agreement (“TRA”)
OP units or public shares can be used in future acquisitions
11. 10
Buying or selling an S corporation
Tax attributes of Target and Buyer
• Target S Corp
− High or low tax basis in assets (and/or stock), may be different numbers if
former C corp or S corp, shares previously sold?
− Assets producing ordinary income on sale?
− Cash basis? Deferred revenue?
− Former C Corp with built-in-gains?
− Owned by taxable person and trusts or ESOP?
− State tax consequences on stock vs asset sale?
− Transaction tax deductions?
Potential timing issue when joining consolidated group and no 338(h)(10) election made
where S election may terminate day before closing under 1502 regs.
• Buyer
− PE Firm (using blocker Corp, AIV, or LLC)?
− Closely-held business (LLC, S Corp, C Corp)?
− Strategic (i.e., public C Corp, Up-C, or PE portfolio company)?
12. 11
Sellers
100% S Corporation Stock
Sellers
80% Class A Participating Preferred Units
20% Class B Participating Preferred Units
Formation of LLC
Target
S Corporation
Target
LLC
Target
S Corporation
100% S Corporation Stock
PE Firm or other buyer of S Corporation with “rollover” equity
interests – Step 1, Alternative A
The Target S Corporation forms a wholly owned LLC subsidiary, contributing operating
assets of the S corporation to the LLC in exchange for 80% Class A Participating
Preferred Units and 20% Class B Participating Preferred Units in the LLC.
Notes:
• If the transaction is structured as the acquisition of 80% or more of the S corporation stock, the Buyer may want to make a
Code §338(h)(10) election, but a tax-free rollover is not possible with such an election.
• With a deemed sale of assets, whether due to a Code §338(h)(10) election or a sale of interests in a disregarded entity,
success-based fees may need to be capitalized and treated as a reduction of the amount realized on the sale (as opposed to
an ordinary deduction).
13. 12
Sellers
100% S Corporation Stock
Sellers
80% Class A Participating Preferred Units
20% Class B Participating Preferred Units
Target
S Corporation
Target
LLC
Newco
S Corporation
100% S Corporation Stock
Contribution and
Formless Conversion
PE Firm or other buyer of S Corporation with “rollover” equity
interests – Step 1, Alternative B
The Sellers form a new S corporation (“Newco”) and contribute all of the issued and outstanding
Target S Corporation stock to Newco. Effective as of the contribution, the Sellers convert the Target S
Corporation to a limited liability company under a state conversion statute; the contribution and
conversion is intended to qualify as a Code §368(a)(1)(F) reorganization and should have no tax
effect. After the conversion, the outstanding equity of old Target S Corporation, now Target LLC, will
be 80% Class A Participating Preferred Units and 20% Class B Participating Preferred Units.
Notes:
• The use of an F reorganization allows the Target LLC to retain its employer identification number it obtained as an S
corporation, helping to prevent headaches related to the transaction, such as payroll difficulties or reporting to regulators
such as Medicaid or Medicare.
14. 13
20% Class B Participating
Preferred Units
Target
LLC
80% Class A Participating
Preferred Units
Buyer
Sellers
Target
S Corporation
100% S Corporation Stock
PE Firm or other buyer of S Corporation with “rollover” equity
interests – Final Structure
Notes:
• Depending on the assets contributed to the Target LLC, the Sellers may recognize both capital gains and ordinary income. The Buyer may provide a gross-up
to account for the extra taxes compared to a stock sale (including additional state income taxes).
• The Buyer will be treated as purchasing a pro rata share of the assets of the Target and contributing such assets to the Target LLC in exchange for its Class A
Units.
• The Sellers will likely be subject to state income tax on their flow-through share of the gain from the S corporation’s sale of LLC interests/deemed asset sale,
based on their residence and perhaps based on where the S corporation conducts business. Sellers should also consider potential application of section 1374
built-in gains tax.
• If the business began before 1993, there may be anti-churning concerns if the Buyer purchases less than 80% of the outstanding equity. Any LLC interests
redeemed through use of bank debt, should likely not be counted in determining if Buyer has purchased at least 80% of the outstanding equity, which means
that if the redemption represents a significant portion of the overall acquisition, the Buyer may end up “purchasing” less than 80% of the outstanding equity.
• If the LLC is established as a partnership at least one day before the transaction, query whether the anti-churning issue can be avoided in the LLC structures
previously discussed.
• Transaction deductions “pushed” into S corporation’s returns to allow them to be deducted against ordinary income, including ordinary income from sale.
• Consider that buyer generally inherits historic tax risks of Target in F reorg structure.
• Determine whether Target is cash basis or has deferred revenue – may result in future tax liabilities (e.g., taxable income realization in the future) without
corresponding cash recouped and thus decrease purchase price.
16. 15
Requirements specific to section 338(h)(10) election
Requires that T must be:
• An S corporation (S election may terminate depending on purchasing group);
• A member of a federal tax consolidated group; or
• A domestic, non-consolidated affiliate owned 80% by another domestic
corporation.
Requires both purchaser and seller (or selling consolidated group)
make a joint election.
Requires a Qualified Stock Purchase (“QSP”)
• Corporate Purchaser
• Acquire > 80% vote and value in fully taxable transaction – Acquired within
12 months
• Acquire within 12 months
Other tax considerations include:
• Corporate attributes lost
• Anti-churning rules
17. 16
Availability of Section 336(e) vs. Section 338(h)(10)
Generally, a Section 336(e) election may only be made if a Section 338(h)(10) election is not
available. The following are the key differences between the Sections:
Section 338(h)(10) Section 336(e)
Joint seller and buyer election
Election within 8.5 months of acquisition
Seller and target election by agreement
Election by due date of buyer’s tax return (made by buyer)
One corporate purchaser
Seller is a U.S. corporation, and Target is affiliated
corporation; or Target is an S corporation
Any number of corporate or non-corporate
acquirer(s)
Seller is a U.S. corporation, and Target is affiliated
corporation, or Target is an S corporation
12-month acquisition period
Sale of 80% vote and value (excluding Section
1504(a)(4) stock)
Related person restriction (Section 318(a)
attribution)
Not available if Seller or Target is foreign
12-month acquisition period
Sales and/or taxable distributions totaling 80% vote
and value (excluding Section 1504(a)(4) stock)
Related person restriction (Section 318(a) attribution
but not between partnerships with < 5% partners)
Not available if Seller or Target is foreign
18. 17
Recap of Section 336(e) Election
Key reasons a Section 336(e) election may be used to obtain a tax
basis step-up:
• A transaction does not qualify for a Section 338(h)(10) election
− Non-corporate purchaser
− Multiple buyers
• A transaction is not a taxable stock purchase, but a disposition occurs (sale,
exchange, or distribution)
• Note the election is not available in the related party context
19. 18
Buying or selling C corporation
Tax attributes of Target and Buyer
• Target C Corp (stand-alone or part of consolidated group)
− Owned by taxable US persons, tax-exempts and/or foreigners (taxable or tax
exempt)?
− Buying a division (branch) or an entire corporate entity?
− Cash basis? Deferred revenue?
− High or low tax basis in its assets (and/or stock), stock frequently higher?
− State tax position?
− NOLs, foreign tax credits?
− Transaction tax deductions – timing issues?
When corp enters or leaves consolidated group, its taxable year closes at the end of the day of the
transaction. Items of income and loss for the day on which it enters the group are generally included in its
separate tax return for the tax year that ends at the close of the day of the sale – the “next day” rule.
• Buyer
− PE Firm (using blocker Corp, AIV, or LLC)?
− Closely-held business (LLC, S Corp, C Corp)?
− Strategic (i.e., public C Corp, Up-C, PE portfolio company)?
20. 19
Sellers
100% Common Stock
Buyer
80% Class A Units
Target
C Corporation
LLC
Holdco
Buying a C Corporation (stand-alone or out of consolidated group) with LLC Holdco
Structure because business may be sold separately in the future – Step 1
The Buyer will form an LLC holding company (“LLC Holdco”) and
contribute cash for 80% Class A Participating Preferred Units. The
Sellers will contribute a portion of their Target Stock to LLC Holdco in
exchange for the Class B Participating Preferred Units. The Class A
Units will have a liquidation preference over the Class B Units.
21. 20
Sellers
Common Stock
Buyer
$$$
Merger
Target
C Corporation
MergerCo
C Corporation
$$$
Lender $$$
LLC
Holdco
80% Class A Units
Buying a C Corporation (stand-alone or out of consolidated group) with LLC Holdco
Structure because business may be sold separately in the future – Step 2
The LLC Holdco forms a transitory merger subsidiary (“MergerCo”), which is capitalized
with some equity and borrows part of the purchase price from a third party lender.
MergerCo merges with and into Target, with Sellers receiving cash in exchange for their
remaining Target Common Stock and LLC Holdco receiving Common Stock in Target in
exchange for its MergerCo stock.
Notes:
• The receipt of cash from Target by the Sellers that is funded by third party debt should be treated as a redemption of the Sellers’
Common Stock. If the Sellers being redeemed are the rollover shareholders, then the distribution received by such Sellers may be
treated as a dividend to the extent of earnings and profits in the Target if the redemption is not a substantial reduction of such
Sellers’ interests in the Target.
• The cash received by Sellers from MergerCo which was contributed to MergerCo by Buyer should be treated as an acquisition of
shares by Buyer.
22. 21
Sellers
20% Class B LLC
interests
80% Class A LLC
interests
Buyer
Target
C Corporation
LLC
Holdco
100% Common Stock
Corporation with LLC Holdco Structure because business may be
sold separately in the future – Final Structure
Notes:
• The LLC Holdco allows for the issuance of profits interests to management and other key employees.
• The operating agreement of an LLC will contain all of the substantive provisions otherwise contained in a shareholder’s agreement, articles of
incorporation, and bylaws of a corporation in a single document.
• The LLC Holdco will allow the parties to more easily split proceeds on a sale and account for escrows and shareholder representative amounts.
• The LLC Holdco provides an additional liability shield for the owners.
• The LLC Holdco allows for add-ons to be acquired and held in a brother-sister corporate subsidiary which can be sold separately without
corporate tax.
• The Sellers should recognize capital gains on the stock sale or redemption, with the previously discussed caveat that a portion of the
redemption may be taxed as a dividend.
• Many states will tax the Sellers on their gain if they are residents there, but some, such as Florida or Nevada, will not.
• There are no anti-churning concerns because any intangible assets would be held inside the corporation, and the transaction is a stock sale.
• Buyer generally inherits historic tax risks of Target, subject to indemnity or reps and warranty (“R&W”) insurance.
• Determine whether Target is cash basis or has deferred revenue – may result in future tax liabilities (e.g., taxable income realization in the
future) without corresponding cash recouped and thus decrease purchase price.
Management
23. 22
Tax developments
Potential tax reform under Trump administration
• Expected proposal for reduced corporate, pass-through, individual tax rates
• Potential implementation of boarder adjustments under House blueprint – destination
(consumption) based
− Destination based system would provide for boarder adjustments exempting exports and taxing imports.
• Revamp of international tax system (end of deferral? territorial taxation?)
• Trump plan vs. House Blueprint
• Brady: no timetable for draft legislation, however GOP lawmakers are working under assumption
of Summer 2017.
Recent / Pending Developments
Trump Blueprint
Investment income Maintain 20% cap gain rate, eliminate
NIIT
Cap gains, dividends, interest taxed at ordinary
rates, but allow for 50% deduction, eliminate NIIT
Passthrough 15% maximum rate 25% maximum rate
Corporate 15% maximum rate 20% maximum rate
25. Katten Muchin Rosenman LLP Locations
Katten refers to Katten Muchin Rosenman LLP and the affiliated partnership as explained at kattenlaw.com/disclaimer.
Attorney advertising. Published as a source of information only. The material contained herein is not to be construed as legal advice or opinion. www.kattenlaw.com
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