When a business engages in a restructure, merger, sale or acquisition of another business, proper planning is vital to obtaining the necessary information to fulfill various tax reporting requirements for the transaction. The type and extent of tax compliance that will be required depends on a variety of factors. For example, is the transaction taxable or tax-free? Is the transaction a sale of actual assets or a stock sale? The answer to these questions determines the next steps in the compliance and reporting process.
It's not always apparent whether a particular transaction is taxable or tax-free. To obtain the comfort necessary for preparing or signing a tax return that will reflect the taxability of a transaction, the following items should be compiled for review:
Once the nature of the transaction is apparent, the next step is to think about the compliance requirements associated with the transaction. Since businesses don't often engage in restructuring transactions, it can be difficult to keep abreast of these requirements. Maintaining a working knowledge of complex M&A rules, as well as the transaction reporting requirements, can be daunting and a time-consuming effort.
Recently, we helped a client sell its business in a stock transaction. We helped the client understand short period return requirements, gain calculations for shareholders, tax implications to the corporation, and various provisions of the stock purchase agreement that affected tax return filing responsibilities. By reviewing the situation and helping the client understand the transaction, the client was able to make an informed decision.