A new landscape for taxable acquisitions

Tax bill shifts economics of certain transaction structures

Mature businessman wearing shirt tie reviewing The Tax Cuts and Jobs Act heralded a new landscape for negotiating and structuring taxable acquisitions. Most significantly, the Act reduced the corporate tax rate to 21% for taxable years beginning after December 31, 2017, down from the highest pre-Act rate of 35%.

Although the Act is arguably a boon to corporations overall, it presents new, nuanced issues around structuring taxable asset acquisitions. Other modifications to the tax code, when coupled with the rate changes, may cause ripple effects that fundamentally shift the economics of certain transaction structures. One such modification — and a central topic of discussion — is the expanded definition of what is excluded from capital asset treatment under Section 1221(a)(3). This expanded language increases the likelihood that intellectual property held by a business will be taxed at higher ordinary rates upon a sale or exchange.

The changes imposed by the Act create an environment in which buyers and sellers now face a slim margin for error, as their competing interests are likely to diverge even further than was previously true.

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Contacts Tim O’Connor Tim O’Connor
Managing Director, Corporate Value Consulting
T: +1 312 602 8680

Barry Grandon Barry Grandon
Managing Director, M&A Tax Services
T: +1 212 542 9690

Drew Burnett Drew Burnett
Sr. Manager, M&A Tax Services
T: +1 212 542 9623