How the new tax law affects mergers and acquisitions

Article Abstract:

The Tax Reform Act repeals the General Utilities doctrine. This repeal affects the tax consequences of mergers and acquisitions. Corporations have to recognize any gain from the distribution of appreciated property to shareholders. The corporations will be taxed on the difference between the basis and market value of the property. The new law changes the ways in which companies are bought and sold. These changes are primarily related to the accounting for asset transfers caused by mergers and acquisitions. Two taxes must now be paid to reflect the assets at market value. Claiming net operating losses will be less frequent under the Tax Reform Act. Both the buyer and the seller must use the residual method to allocate the cost of the transaction, and both must disclose amounts allocated to goodwill. Any inconsistency is likely to invite an IRS audit.

Economic aspects, Laws, regulations and rules, Acquisitions and mergers, Tax accounting, Tax reform, Valuation, Assets (Accounting)

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Corporate tax issues

Article Abstract:

Amendments were made recently to regulations relating to the cost of employer-provided group term life insurance (GTLI) and to corporate tax payment. The Dept of Treasury has introduced temporary regulation 1.79-3T in Nov 1989, effective retroactively Jan 1, 1989, to add monthly costs for employees in the newly created age brackets of 65-to-69 and 70 and older to the Uniform Premium table for GTLI. Further revisions of the table are expected in the future. Congress, on the other hand, has raised the minimum quarterly corporate estimated tax payments to finance the additional employee benefits required by the newly issued 'Unemployment Compensation Amendment of 1992.' Requirements covering annual estimated payments are contained in Section 6655(d)(1)(B). These changes affect tax years starting after Jun 30, 1992.

Column, Corporate taxes, Life insurance, Corporations

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