ACG Cleveland Special Editorial 2022: Buyer, seller tax benefits key to structuring M&A transactions

A properly structured transaction can provide tax benefits to both the buyer and the seller. Typically, buyers want a deductible step-up in basis while sellers want capital gains treatment.  Proper planning is crucial to achieving both.

Tax considerations are important factors in how transactions are structured. The buyer needs to determine which type of acquisition vehicle, e.g., corporation or partnership, will be used, and which type of investment vehicle currently holds the target business. There are several options at the buyer’s discretion, depending on the seller’s structure, to ensure it receives a step-up in basis that, in part, would be eligible for immediate expensing with the remaining step-up deducted over time. The immediate expensing can provide significant tax savings in the first year for the buyer and result in increased cashflow.