Tax valuation issues for M&A

BVWireIssue #262-1
July 10, 2024

M&A valuations
purchase price allocation, mergers and acquisitions (M&A), federal taxation

A good overview of the tax considerations for valuations in the context of mergers and acquisitions is in an article by Tom K. Gottfried and Charles Sapnas, who are managing directors at Valuation Research Corp. The authors examine three common issues that arise: purchase price allocations, IRC Sec. 382 limitations, and tax receivable agreements. They discuss the differences in M&A valuations for tax versus financial reporting purposes and emphasize the importance of identifying the correct valuation standard and methodology.

Diverging standards: They point out that a valuation may need to satisfy more than one standard. For example, a purchase price allocation may require a fair value analysis for financial reporting, a fair market value analysis for tax reporting, and an arm’s-length valuation for transfer pricing purposes in a post-acquisition business reorganization.

The article, which appears in the Tax Executive, can be downloaded if you click here.

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