Mergers and Acquisitions

Accounting methods are important to consider in all phases of a transaction including transaction planning and structuring, due diligence, the treatment of transaction costs, and post-closing merger and integration. For example, in the due diligence phase of a stock transaction buyer should carefully review the seller’s accounting methods to identify exposures that may be negotiated in the purchase price or allow the seller to change to a correct method for the period that ends prior to the transaction. Eric Lucas is the lead tax accounting advisor for Leo Berwick, a leading full-service M&A advisory firm.

Additional examples of the importance of reviewing accounting methods in the transactional context are set forth below.

Examples

Structuring

In depth knowledge of section 381 regulations allowed for creative and seamless integration of acquiror's and target's methods of accounting in nontaxable merger.

An accounting methods review of Target led to filing multiple method changes to generate built in gain and increase section 382 limitation in a stock acquisition.

Due Diligence

In an asset transaction, seller and buyer negotiated the treatment of deferred revenue and agreed that seller would file a method change for the pre-close period and include the adjustment entirely on seller's return using an EAT election.

Post Close - Stock Acquisition

An accounting methods review of target corporation assisted buyer with post-closing adjustments and changes to proper accounting methods. Target was required to change to an overall accrual method of accounting that resulted in Target no longer being considered a small taxpayer eligible for the cash method of accounting or exception to inventory rules under section 263A.

National Tax

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