Tax consulting services for middle market mergers and acquisitions.
Tax Due-Diligence Procedures
So you’re buying or selling a business. How do you know whether the IRS is going to come in two years later and assess a large tax liability? How can you be certain that the business is correctly charging sales taxes to its customers and filing in the right states? How do you confirm that the business is collecting and remitting all of its payroll taxes properly?
That’s where Acta Consulting comes in. Our experienced professionals will scrub down the target’s tax returns and operations to identify any suspect areas of tax reporting and compliance. Once we’ve identified those areas, we’ll work with you in the context of the transaction in order to resolve and protect you from those identified exposures.
Mergers & Acquisition Tax Structuring
Here at Acta, we view paying taxes as a privilege. Paying taxes means you made money, and that’s always the goal. What we don’t like, however, is you paying any more than the absolute minimum tax liability; in the immortal words of Judge Learned Hand, there is not even a patriotic duty to increase one’s taxes.
We’ve given our governments the immense power to tax – but with that power comes the responsibility to detail the exact situations in which that power can be employed. Acta’s role is to understand where Congress has required the payment of tax and how we can arrange our clients’ affairs so as to minimize the impact of those requirements.
Tax Attribute Modeling
We are firm believers that knowledge is power and when you’re in an auction process, that power creates money. From the sell-side, knowledge of your company’s tax attributes can be shared with potential buyers in order to drive the potential purchase price higher. From the buy-side, understanding and properly valuing the company’s tax attributes can put you at a competitive advantage next to the other bidders. Acta may not be able to tell you how the business will grow and what synergies can be created with your existing businesses, but we can tell you what tax attributes you’ll be acquiring and how those attributes interface with your structure and existing companies. Further, we can do it in two stages - an initial pre-LOI high-level evaluation that doesn’t kill your investigatory costs, and then a more in-depth analysis post-LOI to confirm those findings.
Section 382
Section 382 limits a loss corporation’s utilization of net operating loss carryforwards in connection with changes in ownership. What does that mean? It means that, while C corporations that have lost money historically can generally use those losses to offset future income and reduce their tax bill, if more than 50% of the ownership of that corporation changes during a three year period, a limitation is slapped on the corporation’s future use of those losses.
If you’re buying a corporation with losses, you need to understand the impact that Section 382 has on your ability to use those losses. Your Acta professional can help you understand that limit, but can also work with you to structure the acquisition to minimize its impact.
Stock vs. Asset Acquisition Analysis
All of Acta’s clients know that buying assets is better than buying stock because you get a basis step-up and you get to invest in a pass-through. But an asset sale can result in adverse consequences for a seller. Acta advisors have experience not only in analyzing the benefits and detriments of an asset purchase, but in manipulating the basic asset sale structure so as to maximize the benefit for the buyer and minimizing the detriment for the seller.
If you’re evaluating an acquisition and are torn between an asset or a stock deal, or if you’d like to do an asset deal, but the price seems too high, contact your Acta professional to see if we can help.
Section 280G
The “golden parachute” rules of Sections 280G and 4999 come into play for certain individuals that receive compensation in connection with the transaction that equals or exceeds three times the individual’s average compensation for the portion of the past five years that they have worked for the corporation. Those payments characterized as “golden parachute payments” are subject to a 20% excise tax and the target corporation is denied a deduction for such payments. Which individuals the provisions apply to, how is compensation determined, and what is considered average compensation is all subject to the vagaries of the Section 280G regulations.
Carried Interest Planning
If you make your living from a carried interest in a fund, you’ve heard of the three-year rule – unlike normal investments, which have a one-year period in order to be taxed at favorable long-term capital gain rates (20%, federal), if you’ve held your investment for less than three years, you get taxed at the short-term capital gain rates (37%, federal).
Kind of. It turns out that, like most things tax related, the devil is in the details. There are loopholes that provide opportunities for nearly any investor to avoid the three-year rule if they prepare for a disposition at the time of the initial investment. Acta Consulting helps to structure acquisitions with an eye towards ultimate disposition, preparing for the possibility that that disposition will be within three years.