Tax Accounting in Mergers and Acquisitions, 2019 Edition

There are many considerations that influence how a transaction is structured, including tax considerations. The most basic tax issue is whether to structure the transaction as taxable or tax-free. In general, there are four basic structures for a corporate acquisition: (1) a taxable acquisition of a target corporation’s stock; (2) a taxable acquisition of a target corporation’s assets; (3) a tax-free acquisition of the target corporation’s stock; or (4) a tax-free acquisition of a target corporation’s assets. While at first blush, it may seem that it is always more desirable to structure a transaction as tax-free, this is not always the case. As an initial matter, the requirements for structuring a transaction as a tax-free reorganization, which are set forth in § 368, are quite strict. The strictures imposed by § 368 may not always be compatible with the business objectives of the parties to the transactions, making resort to a taxable structure more desirable. If the fair market value of a target corporation’s assets is greater than the target’s basis in such assets, the purchaser may wish to acquire a fair market value basis (i.e., a stepped up basis) in such assets, something that is only possible in a taxable asset acquisition or a taxable stock acquisition for which a § 338 election is made.

Glenn R. Carrington is the National Tax Director for Client Services at Ernst & Young LLP, where he serves on the US Executive Board. Glenn primarily focuses on serving clients in the areas of corporate, tax accounting, and financial transactions. Additionally he spends time developing and implementing strategy for the E&Y tax practice with an emphasis on key accounts for the firm. He has a strong background in high-profile issues such as capitalization, intangibles, bankruptcies, corporation reorganizations, contingent liabilities and environmental remediation. He reports directly to the Americas Vice Chair, Mark Weinberger. Glenn has had an illustrious career for over 20 years, both in private practice and the government. Over half of his career has been spent as a partner with major accounting firms. He was with Arthur Andersen for eight years where he served as Managing Director of their Office of Federal Tax Services (“OFTS”) and head of OFTS’ Domestic Tax Practice Group. He served at the IRS as Assistant Chief Counsel (Income Tax & Accounting) from July 1990 to April 1994; as a Branch Chief in the Office of the Assistant Chief Counsel (Corporate) from October 1988 to July 1990; and as Counsel to the Director of Corporation Tax Division from December 1987 to October 1988. Prior to joining the IRS, Glenn was in private practice at Caplin & Drysdale, Chartered. He began his legal career in 1980 as an Attorney-Advisor in the Treasury Department’s Honors Program, where he rotated through the Tax Legislative Counsel’s Office and the Office of International Affairs at Treasury, as well as the former Interpretative Division in the Office of Chief Counsel at the IRS. Glenn is a member of the ABA Taxation Section. He has also served as Chair of the ABA’s Government Relations Committee, as well as an adjunct professor in the Graduate Tax Program at Georgetown University Law Center. Glenn earned his law degree from the University of Virginia School of Law in 1980. He is a frequent speaker at the Practicing Law Institute, the UCLA Tax Institute (formerly the Miami Tax Institute), and other conferences. Glenn is listed in the Corporate Tax section of the International Who’s Who of Business Lawyers