Presenting a live 90-minute webinar with interactive Q&A Asset Sale vs. Stock Sale: Tax Considerations, Advanced Drafting and Structuring Techniques for Tax Counsel TUESDAY, JUNE 27, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Matthew J. Donnelly, Esq., Skadden Arps Slate Meagher & Flom , Washington, D.C. Paul Schockett, Counsel, Skadden Arps Slate Meagher & Flom , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted.
Tips for Optimal Quality FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-328-9525 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. NOTE: If you are seeking CPE credit, you must listen via your computer — phone listening is no longer permitted. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program. For CPE credits, attendees must participate until the end of the Q&A session and respond to five prompts during the program plus a single verification code. In addition, you must confirm your participation by completing and submitting an Attendance Affirmation/Evaluation after the webinar and include the final verification code on the Affirmation of Attendance portion of the form. For additional information about continuing education, call us at 1-800-926-7926 ext. 35.
Asset Sale vs. Stock Sale: Tax Considerations, Advanced Drafting & Structuring Techniques for Tax Counsel June 2017
Presenters Matthew Donnelly, Skadden Arps, Washington, D.C. Paul Schockett, Skadden Arps, Washington, D.C. 5
Matthew Donnelly Matthew Donnelly, (202) 371-7236 (matthew.donnelly@skadden.com) Matt’s practice focuses on the domestic and international tax aspects of mergers, acquisitions, dispositions, joint ventures, restructurings and financings. 6
Paul Schockett Paul Schockett, (202) 371-7815 (paul.schockett@skadden.com) Paul advises public and private companies on a broad range of U.S. federal income tax issues, with particular focus on mergers, acquisitions, dispositions, joint ventures, debt and equity offerings, bankruptcy restructurings and tax-equity financings. 7
Outline Forms Seller’s considerations Buyer’s considerations Impact of the target company’s characteristics Effect of elections under IRC § 338, § 336(e) and Treas. Reg. § 1.1502-36(d) International tax and state/local tax considerations Contractual protections 8
Scope Taxable acquisitions Not qualifying as “reorganizations” under IRC § 368 Private (or closely-held) deals Target is a subsidiary or an entity held by a small or limited number of equityholders Greater flexibility in structuring 9
Forms 10
Forms: Asset Sales Asset purchase agreement (APA) LLC purchase agreement (MIPSA) Check-the-box rules (Treas. Reg. § 301.7701-1 et seq.) Rev. Rul. 99-5 & Rev. Rul. 99-6 Forward merger See Rev. Rul. 69-6 11
Forms: Stock Sale Stock purchase agreement (SPA) Reverse subsidiary merger See Rev. Ruls. 67-448 & 90-95 12
Seller’s Considerations 13
Seller’s Considerations: Asset Sale Income Tax Consequences Ordinary income and/or capital gain (or loss) on the sale of assets See, e.g., IRC §§ 1221, 1231, 1245, 1250 ITC recapture 14
Seller’s Considerations: Asset Sales Income Tax Consequences: “Single” or “Double” Tax If the Seller is an individual, entity taxable as a “pass - through” or “flow - through” (and directly owned by individuals) or under a preferential regime, proceeds generally only taxable once (at the member/shareholder level at individual rates) See, e.g., subchapters K, M, S & T If the Seller is taxable as a corporation for U.S. federal tax purposes: Income tax imposed on the corporation (IRC § 11) After-tax proceeds taxable again at the individual level upon distribution to shareholders (IRC § 301) 15
Seller’s Considerations: Asset Sales Other tax considerations FIRPTA Real estate transfer taxes Sales taxes 16
Seller’s Considerations: Stock Sale Income Tax Consequences Sellers generally will recognize capital gain or loss on the sale of target stock Preferential rates may apply to non-corporate sellers with a holding period of more than one year Capital losses may be subject to limitations But see IRC §§ 338(h)(10), 336(e) (discussed below) FIRPTA 17
Seller’s Considerations: Asset Sale vs. Stock Sale For certain sellers, stock sale generally results in a “single” level of income tax Higher threshold to application of FIRPTA to stock sale However, as discussed below, depending on the target’s basis in its assets, sellers may prefer an asset sale to claim a larger loss See Treas. Reg. § 1.1502-36(d) State real estate transfer taxes & sales taxes generally inapplicable to stock sales 18
Buyer’s Considerations 20
Buyer’s Considerations: Asset Sale Income Tax Consequences Cost basis in assets See IRC § 1012 Depending on composition of assets, step-up in tax basis can give rise to incremental increase in depreciation & amortization deductions for the buyer See IRC §§ 167, 197 Purchase price allocation? See IRC § 1060 21
Buyer’s Considerations: Stock Sale Income Tax Consequences Cost basis in stock See IRC § 1012 No cost recovery deductions with respect to stock basis Stock basis available to offset future stock sale But see IRC §§ 338(h)(10), 336(e) (discussed below) 22
Buyer’s Considerations: Asset Sale vs. Stock Sale Buyers generally prefer asset sales because asset basis can be recovered currently via depreciation/amortization deductions However, as discussed below, depending on the target’s tax attributes, buyers may prefer a stock sale But see Treas. Reg. § 1.1502-36(d) 23
Impact of Target’s Tax Characteristics 24
Target Tax Characteristics If the buyer acquires the stock of a corporate target, the target’s tax attributes generally survive subject to certain limitations The availability of these attributes to offset income of the target (and other income of the purchaser) after the acquisition are a critical consideration in whether a buyer may seek to structure a transaction as a stock sale or an asset sale Similarly, in auction contexts, sellers may anticipate an assignment of value to the target’s attributes and invite the buyers to specifically allocate consideration to such tax attributes 25
Target Tax Characteristics: Examples Net operating losses (NOLs) & NOL carryovers See IRC § 172 Capital losses & capital loss carryovers See IRC § 1212 Business credit & foreign tax credit carryforwards See IRC §§ 27, 39 Minimum tax credits See IRC § 53 Tax basis 26
Target Tax Characteristics: Limitations in General The availability of tax attributes after a stock acquisition may be limited under IRC §§ 382 and 383 Net operating losses and net operating loss carryovers are subject to limitation under IRC § 382 Business credits, minimum tax credits, net capital losses and foreign tax credits are subject to limitation under IRC § 383 In addition, if the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax, tax attributes may be subject to limitation under IRC § 269 Further, anti-abuse doctrines developed under case law may also apply to limit a target’s attributes 27
Target Tax Characteristics: IRC § 382 Limitation The limitation under IRC § 382 arises routinely when buyers are valuing a target’s tax attributes As a general matter, the IRC § 382 limitation is applied to limit the amount of the target’s NOLs that may be used to offset income after an ownership change The IRC § 382 limitation is generally computed as the equity value of the target immediately prior to the ownership change multiplied by the long-term tax-exempt rate (which is reset monthly by the IRS) Subject to important complex exceptions intended to allow a target’s pre -change losses to offset its pre-change income 28
Recommend
More recommend
