2024 saw several tax developments likely to impact M&A and the pending change in administration raises the potential for further significant changes. Spin-Off Transactions The IRS both expanded and limited the situations in which it would rule on whether a spin-off would be taxable. For example, the IRS confirmed that it would address whether a spin-off represents an impermissible “device” for the distribution of corporate earnings, or is part of a “plan” to acquire 50% or more of the distributing parent corporation or its spun-off subsidiary, either of which would render the spin taxable.38 On the other hand, the IRS limited the situations in which it would rule on certain transactions designed to allocate group leverage between the distributing parent and the spun-off controlled corporation or where the distributing parent retains shares of its controlled subsidiary after the spin (even though the parent distributes the requisite 80% control of its subsidiary in the initial transaction).39 Transactions 38 Rev. Proc. 2024-1 and Rev. Proc. 2024-3. 39 Rev. Proc. 2024-24 that involve a rebalancing of group leverage or the retention of shares in the controlled subsidiary therefore may be more difficult to accomplish. Stock Buyback Excise Tax New proposed regulations on the 1% stock buyback excise tax enacted as part of the 2022 Inflation Reduction Act generally follow the IRS’s initial guidance and impose the excise tax on “bootstrap” acquisitions and leveraged buyouts to the extent that cash used to purchase the target is sourced from the target. In contrast, the boot in partially tax-free reorganizations is subject to the excise tax regardless of its source. 15% Corporate Alternative Minimum Tax New proposed regulations on the corporate alternative minimum tax, the 15% minimum tax applied on adjusted financial statement income (“AFSI”) of certain corporations or corporate groups with three-year average annual AFSI in excess of $1 billion, expand on earlier guidance. Of special note is the proposed rule that generally would include in AFSI all deferred gain in a tax-free transaction if any gain or loss is recognized by a transferor corporation unless the corporation distributes the taxable “boot” to its shareholders in connection with a taxfree reorganization or spin-off. Future Tax Rates While impossible to predict, GOP lawmakers and Presidentelect Trump have said it will be a priority to make the 2017 tax cuts permanent and perhaps even to restore certain deductions that were eliminated in 2017 (such as SALT deductions over $10,000). However, the refusal of Congress to lift the debt ceiling as part of its recent actions to avert a government shutdown likely demonstrates the difficulties in passing legislation that would significantly reduce tax revenue. Changes, or expected changes, in tax rates could significantly affect desired timing of transactions and the value of avoiding a taxable event by using a compliant spin or other structure. 10. Tax Changes Affect Transaction Planning 20 Morrison Foerster
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