Opportunities and Traps in the Tax Treatment of Transaction Costs and Intangible Asset Costs

Tax Management Real Estate Journal, V. 31, N. 2, p. 31, 2015

13 Pages Posted: 22 Aug 2019

See all articles by Andy A. Torosyan

Andy A. Torosyan

Holthouse, Carlin & Van Trigt LLP

Shahab Razani

CSUN; AICPA; AAA; ACFE

Date Written: February 4, 2015

Abstract

Companies buying or selling businesses incur billions of dollars in transaction costs every year. Unlike typical business expenses, there are rules that prevent taxpayers from currently deducting transaction costs and, in some cases, ever deducting these costs. To clarify this area, in 2003 Treasury and the Internal Revenue Service issued final regulations under §263.3 Reg. §1.263(a)-4 and Reg. §1.263(a)-54 provide comprehensive rules about the treatment of costs related to intangible assets, including transaction costs incurred in mergers and acquisitions and certain real estate transactions. The IRS has also issued guidance for success-based fees (or contingent transaction costs) and for milestone payments. However, it appears the safe harbor provisions for success-based fees exclude sellers’ costs in asset sales. The phrase ‘‘transaction costs’’ includes direct and indirect costs. Specifically, costs incurred in facilitating the acquisition or disposition of a trade or business, a change in capital structure, formation of legal entities, borrowings, and other similar transactions. Costs incurred in other transactions, such as construction of real estate and the purchase of machinery also are subject to capitalization. The focus of this article is transactions described in Reg. §1.263(a)-4 and Reg. §1.263(a)-5 with a focus on opportunities and pitfalls.

Note: Reproduced with permission from Tax Management Real Estate Journal, V. 31, N. 2, p. 31, 02/04/2015. Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

Keywords: acquisition transaction costs

Suggested Citation

Torosyan, Andy A. and Razani, Shahab, Opportunities and Traps in the Tax Treatment of Transaction Costs and Intangible Asset Costs (February 4, 2015). Tax Management Real Estate Journal, V. 31, N. 2, p. 31, 2015, Available at SSRN: https://ssrn.com/abstract=3435354 or http://dx.doi.org/10.2139/ssrn.3435354

Andy A. Torosyan

Holthouse, Carlin & Van Trigt LLP

United States

Shahab Razani (Contact Author)

CSUN ( email )

18111 Nordoff Street
Northridge, CA 91330
United States

HOME PAGE: http://https://tsengcollege.csun.edu/programs/TAX/faculty

AICPA ( email )

1211 Avenue of the Americas
New York, NY 10036-8775
United States

HOME PAGE: http://www.aicpa.org

AAA ( email )

5717 Bessie Drive
Sarasota, FL 34233-2399
United States

HOME PAGE: http://www.aaahq.com

ACFE ( email )

World Headquarters - The Gregor Building
716 West Ave
Austin, TX 78701
United States

HOME PAGE: http://www.acfe.org

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