Tax Basics for the Business Lawyer May 25, 2017 Presented by the - - PowerPoint PPT Presentation

Tax Basics for the Business Lawyer

May 25, 2017

Presented by the Taxation Committee

• Roger Royse, Royse Law Firm, Menlo Park, CA
• Joseph D. Carney, Joseph D. Carney & Associates LLC, Avon, OH
• Daniel J. Walter, Stone Pigman, New Orleans, LA
• Allen Sparkman, Sparkman + Foote LLP

, Houston, TX

Tax Aspects of Mergers and Acquisitions and the Purchase and Sale

• f a Business

May 25, 2017 Presented by:

Daniel J. Walter

504.593.0826 | dwalter@stonepigman.com

stonepigman.com

stonepigman.com

Sale of a Business

• Asset Sale vs. Ownership Interest Sale
• Buyer
• Generally prefers asset sale
• Seller
• Generally prefers ownership interest sale

30

stonepigman.com

Sale of a Business

31

Target

T Owners

Acquirer

A Owners T Assets $$

Acquirer (T assets)

A Owners T Owners

Target ($$)

Asset Sale

Step 1 Step 2 T realizes gain on assets A obtains step-up basis in the assets

$$

T owners realize gain

• n distribution

A depreciates assets using higher basis

stonepigman.com

Sale of a Business

32

Target

T Owners

Acquirer

A Owners T Interests $$

Acquirer

A Owners T Owners ($$)

Target (T Assets)

Ownership Interest Sale

Step 1 No Step 2! T Owners realize gain on sale

• f T interests

A obtains cost basis in T interests T owners have no second level

• f tax

A depreciates assets using lower historical basis

stonepigman.com

Sale of a Business

• C Corporation
• 2 levels of tax vs. 1 level of tax
• Higher marginal corporate tax rate vs. lower

capital gains rate

• Passthrough (S Corp or Partnership)
• Only 1 level of tax
• UNLESS S Corp has C Corp built-in gain
• Higher marginal ordinary income rate vs. lower

capital gains rate

33

stonepigman.com

Mergers & Acquisitions

• Form Matters!
• Statutory Merger
• Forward Subsidiary Merger
• Reverse Subsidiary Merger

34

stonepigman.com

Statutory Merger

35

Target

T Owners

Acquirer

A Owners Merger $$

Acquirer (T assets)

A Owners T Owners ($$)

stonepigman.com

Forward Subsidiary Merger

36

Target

T Owners

Acquirer

A Owners Merger $$ T Owners ($$)

Merger Sub Acquirer

A Owners

Merger Sub (T assets)

stonepigman.com

Reverse Subsidiary Merger

37

Target

T Owners

Acquirer

A Owners Merger $$ T Owners ($$)

Merger Sub Acquirer

A Owners

Target

stonepigman.com

"Tax Free" Reorganizations

• Requires corporate parties to the reorg
• General requirements
• Continuity of Interest (COI)
• Generally at least 40% of the consideration must be

stock in the acquirer

• Continuity of Business Enterprise (COBE)
• Use at least 1/3 of the historical assets
• Business Purpose
• Non-tax business reason

38

stonepigman.com

Reorganizations

• Type A (Statutory Merger)
• Type B (Stock Acquisition)
• Type C (Asset Acquisition)
• Type D (Divisive)
• Type F (Change in Form)

39

stonepigman.com

Type A (Statutory Merger)

40

Target

T Owners

Acquirer

A Shareholders Merger A stock

Acquirer (T assets)

A Shareholders T Owners

stonepigman.com

Type B (Stock Acquisition)

41

Target

T Shareholders

Acquirer

A Shareholders T stock A Stock T Shareholders

Acquirer

A Shareholders

Target Target Shareholders must exchange T stock for A stock AND Acquirer must have control (80% of vote and value) immediately after the acquisition

stonepigman.com

Type C (Asset Acquisition)

42

Target

T Shareholders

Acquirer

A Shareholders T Assets A Stock + Boot T Shareholders

Acquirer (T assets)

A Shareholders

Target must exchange substantially all of its assets (70% of gross, 90% of net) for A voting stock (at least 80% of fair market value of assets) AND Target distributes all its property to the T shareholders

A Stock + Boot