Buy Me to the Moon! Learn about Tax Considerations for Buyers and Sellers in M&A Deals

The best way to learn about the tax considerations for buyers and sellers in M&A transactions is to study the different M&A deal types. This practice note focuses on the typical tax consequences of mergers and acquisitions, organized by deal type (asset purchase agreement, stock purchase agreement, and merger transactions), to provide the practitioner with practical advice. Asset purchases present some interesting tax complications and opportunities. In general, the basic tax issue in an asset sale is that any gain on the assets sold is usually taxed at the seller’s corporate level. For sellers, stock transactions are normally taxable transactions unless the "tax-free" stock exchange rules under Section 368 of the Internal Revenue Code are satisfied.  Merger transactions, however, result in one level of tax for the target stockholders. The type of consideration and merger structure chosen will determine the tax consequences for the buyer and the selling stockholders. 

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Related Content

• Tax Considerations for Purchase Price Allocations
  Read more about corporate acquisitions. In a business acquisition structured as an asset sale, the buyer and seller will include language in the purchase agreement governing the allocation of the purchase price among the acquired assets. The parties generally agree that, except as otherwise required by law, the parties will adhere to the allocation of purchase price for all tax purposes and will file tax returns consistent with the allocation.

• Double Dummy Mergers: U.S. Federal Tax Treatment
  Learn about double dummy (or “dummy dummy”) mergers. A double dummy merger structure often is used when both the acquiring corporation and the target corporation are of similar size and are commonly used in friendly public company acquisitions. Depending on the facts, a double dummy merger can be structured as completely tax-free, partially tax-free, or as a taxable purchase.

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