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
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
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