MERGER INFO

Question 1

Types of Transaction Costs

Answer 1

• Inherently facilitative
• Non-facilitative
• success based fees

Question 2

What are inherently facilitative costs

Answer 2

• costs incurred to investigate or pursue a transaction
• must be capitalized as provided by 1.263(a)

Question 3

Examples of inherently facilitative costs

Answer 3

costs of
- structuring the transaction
- preparing and reviewing the documents that effect the transaction
- securing an appraisal or fairness opinion
- obtaining shareholder or regulatory approve

Question 4

Bright line date rule?

Answer 4

Except for inherently facilitative costs, an amount paid by a taxpayer in the process of investigating or otherwise pursuing a covered transaction is viewed as facilitating the transaction (and, therefore, must be capitalized) only if the amount relates to activities performed on or after the earlier of the following dates
- The date the letter of intent, exclusivity agreement or similar written communication is signed by representatives of both the acquirer and the target, or
- The date the material terms of the transaction are authorized or approved by the taxpayer’s board of directors (or board committee).

Question 5

Success based fees

Answer 5

fees payable to the service provider only upon the successful closing of the transaction — are generally the largest fees paid in most acquisitive transactions

Question 6

Success based fees safe harbor

Answer 6

Rev. Proc. 2011-29 prescribes a special safe harbor under which the taxpayer can elect to treat the fee as 70% non-facilitative (i.e., generally deductible unless Section 195 applies to treat the fee as a capitalizable start-up expenditure) and 30% facilitative (i.e., capitalizable), without the need to incur significant time to analyze such fees under the bright line date rule

Question 7

Success based fees examples

Answer 7

• financial advisory fees
• investment banker fees