Top 10 Tax Code Provisions to Leverage in M&A (Part 2)

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In this episode of the M&A Source podcast, Dave Dejewski continues a series on essential tax code provisions for mergers and acquisitions, discussing five additional provisions that can significantly impact tax outcomes for buyers, sellers, and their advisors.

Topic Discussed

The exchange is a podcast discussing 10 tax code provisions that are relevant for mergers and acquisitions (M&A) transactions. It is divided into two parts, with Part 1 covering the first 5 provisions and Part 2 covering the remaining 5 provisions.

Part 2 covers the following tax code provisions:

1. Section 368 - Tax-Free Reorganizations

This provision allows for tax-deferred treatment of certain corporate reorganizations, such as mergers and acquisitions, to encourage business continuity, growth, and realignment without triggering immediate tax liabilities. It requires continuity of interest and continuity of business enterprise.

2. Section 409A - Deferred Compensation

This provision establishes strict rules for when income can be deferred and when it must be paid, preventing abuse and ensuring fairness in the tax system. It imposes penalties for non-compliance and encourages proper planning and transparency in deferred compensation plans.

3. Section 1031 - Like-Kind Exchanges

This provision allows for the deferral of capital gains taxes when exchanging real properties for similar properties, stimulating growth in real estate-heavy businesses.

4. Section 721 - Contributions to Partnerships

This provision promotes the creation and growth of partnerships by allowing individuals or entities to contribute property to a partnership without triggering immediate tax consequences, facilitating partnership formation and encouraging joint ventures and investments.

5. Section 453 and 453A - Installment Sales

Section 453 allows sellers to report capital gains income over time through the installment sale method, aligning tax payments with the receipt of sale proceeds and providing tax deferral. Section 453A imposes an interest charge on large installment sales over $5 million to limit the tax benefits of deferring large amounts of tax.

Key Takeaways

These final five of ten tax provisions cover a wide range of areas, including tax-free reorganizations, deferred compensation, like-kind exchanges, partnership contributions, and installment sales.

The episode highlights the importance of understanding these provisions and leveraging them to minimize tax liabilities, encourage business continuity, and facilitate growth and realignment. It also emphasizes the need for proper planning, transparency, and compliance to avoid penalties and ensure that the intended tax benefits are realized.

Overall, this episode provides valuable insights into the tax considerations and strategies that should be taken into account when structuring M&A deals, making it a valuable resource for advisors, business owners, and investors involved in such transactions.

LEGAL DISCLAIMER: This resource is intended for educational purposes only and does not constitute legal, financial, or tax advice. The information provided herein should not be relied upon for any specific business or financial decision without first consulting appropriate professional counsel. Readers are encouraged to seek advice from qualified attorneys, accountants, or other professionals to address their unique circumstances. Neither the authors nor the publisher assumes any responsibility for actions taken based on the information provided in this resource.