Some of the transactions that companies can have been merges and acquisitions. b These
transactions can have very important tax consequences positive and negative. b Merges and
acquisitions can be tax-free or a taxable event (“Mergers and acquisitions,” 2023). b These
transactions may be tax free based on IRC 368 where there is an exchange solely for all or part of
the voting stock of another corporation. Under IRC 1001, it would be considered a taxable
transaction (Jagoda, Tribe, Leahey, 2023). b Companies would want to have adequate tax staffing to
support the merger or acquisition so that they could be put in the right positions for tax purposes. b
If the company that is selling shareholders will have to pay capital gain taxes and would want more
value for their share to the compensation. b This allows the company to have a strategy plan in
place and go with the best decision making for tax purposes for the CEO and the stakeholders. b
For the example, I would choose option C with seek the advice of the company’s tax advisers. b The
reason why there are certain tax laws in regards to IRC 382 which would restrict the net operating
loss (NOL) and the sec 269(a). b Without have the advice of the company’s tax advisors just going
thru these transactions without knowing the rules. b The entire credit from the NOL could be
disallowed if company A is acquiring company B just to evade or avoid tax instead of acquiring
company B because they have some aspects of their business that would benefit company A by
acquiring them (Knight & Knight, 2021). b Company A cannot own 50% of the company B voting
power or 50% of the total value of shares in all classes of stock. b With all of these rules and
regulations getting advice from the company’s tax advisor gives the CEO the ability to get the
information needed, so that the CEO could make a meeting with the board of directors and seek
approval to go ahead with the approval to approach the company B for a deal.
b When there is a merger and acquisition between companies there are many things that change. b
There are many budget cuts, training employees on the new policies and procedures. This time is
very uncertain for many employees as well as management and that leads to low quality of work.
The Company that bought the little company needs to figure out how to emerge the new
employees to their culture and processes. Other things to consider are having a knowledgeable
accountant and tax professional that know how to properly process the merger and acquisitions
and also communicate all financial changes to management in order for them to understand how it
will impact the bottom line. This transaction can be unique to the companies depending on their
merger situation and tax professionals need to be adequately knowledgeable. It can hurt the
company drastically with something as simple as a small erroring tax computation. Processing the
tax transaction Is only one part of it professional are still needed and are responsible for correctly
reflecting the income tax transactions in the company tax return. It is critical the company
maintains and has adequate tax staff.
Tax laws are always changing and improving. Their tax staff needs to be familiar with the changes
and resources available in order to properly provide timely guidance. Lacking this expertise can
bring companies financial consequences. When considering a merger and acquisition companies
need to consider the allocation of the purchase price to identify the assets acquired and all the
liabilities. Allocating the income taxes among both taxable entities. Another thing to consider
would be all the documentation to be submitted to the IRS for the mergers that include filing an
annual and subsidiary tax return and IRS Form 8594 “Assets Acquisition Statement” and IRS
Schedule D (Form 941) “if those acquisitions statutory mergers or consolidations that create
discrepancies between W-2 and Form 941 company’s tax return” IRS.gov) that provides financial
information. Conducting routine tax audits to make sure the company is following all laws and
regulations. Tax accountants need to be able to calculate all federal income tax as well as any
state, local and international taxes if applicable.
Links that are helpful to accountants to continue their professional education and resources
available to the can be found in:
American Institute of CPA (AICPA) Code of Professional Conduct b About us | Resources | AICPA
(aicpa-cima.com)
Circular 230, Ethical Standards
Financial Accounting Standard Board (FASB) FASB Home
Journal of Accountancy Tax compliance after M&As - Journal of Accountancy
Instructions for Schedule D (Form 941)Instruction 941 Schedule D (Rev. June 2011) (irs.gov)
Internal Financial Reporting Standards (IFRS) IFRS - Home
IRS: Form 8594 Asset acquisition Statement under Section 1060 About Form 8594, Asset
Acquisition Statement Under Section 1060 | Internal Revenue Service (irs.gov)
Publication 542 corporations Publication 542 (01/2022), Corporations | Internal Revenue Service
(irs.gov)
Sarbanes Oxley and Taxation
The U.S. Code Title 26 U.S. Code: Title 26 | U.S. Code | US Law | LII / Legal Information Institute
(cornell.edu)
Thomas Reuters Checkpoint Checkpoint | Login (riag.com)
US Securities and Exchange Commission SEC.gov SEC.gov | HOME
Reference:
Internal Revenue Service, July 12th,2023, "Form 8594 Asset acquisition Statement under Section
1060" About Form 8594, Asset Acquisition Statement Under Section 1060 | Internal Revenue
Service (irs.gov)
Internal Revenue Service, July 12th, 2023, "Instructions for Schedule D (Form 941)" Instruction 941
Schedule D (Rev. June 2011) (irs.gov)
Jagoda, N., Automation, B. T., Automation, B. L., Tribe, M., Iacone, A., & Leahey, A. (2022, August
23). Tax considerations in M&A and restructuring. Bloomberg Tax.
https://pro.bloombergtax.com/brief/tax-considerations-in-ma-and-restructuring/
Knight, R. A. & Knight, Lee (2021, February 1). Acquiring the tax benefits of a corporation. Journal
of Accountancy. https://www.journalofaccountancy.com/issues/2021/feb/tax-benefits-of-a-
corporation.html
Mergers and acquisitions. Reference for Business. (2023).
https://www.referenceforbusiness.com/encyclopedia/Man-Mix/Mergers-and-
Acquisitions.html#:~:text=With%20an%20acquisition%2C%20no%20income,capital%20requirements
%20and%20enhancing%20profitability.
