Tax Update Blog

The Mythical Magical Date of December 31st

By Carolyn Linkov, J.D.

If you’re a tax advisor (or any type of advisor) in the mergers and acquisitions (“M&A”) world, the month of December – including the week between Christmas and January 1st – is no time for relaxation and reflection. This is because a disproportionate number of transactions are consummated before the demarcation between calendar years. But what is so important from a tax perspective about closing a transaction on the last day of a calendar year versus any other day of the year?

Not all that much, if you ask me. Sure, the closure of a deal in the current taxable year can seal in current year income recognition if the client has losses or credits about to expire; and yes, it’s usually marginally administratively easier and less expensive to prepare one full-year income tax return than it is to prepare two short period income tax returns. But the potential expiration of losses or credits, or the cash savings that can be measured in the cost of a few extravagant dinners doesn’t explain why December 31st is viewed as such a pivotal date in the M&A world.

Don’t get me wrong -I truly love every aspect of my role as an M&A tax advisor, and juggling a lot of deals simultaneously is the nature of the proverbial beast – but I sometimes wonder if in the rush to close a transaction by December 31st, some creative tax-planning strategies are overlooked, or buyers and/or sellers sacrifice some non-tax benefit they otherwise would realize if December 31st wasn’t the goal.

With all the chaos that 2020 has brought, maybe it’s time to break with tradition in the coming year and not be so focused on December 31st as the mystical, magical date on which a transaction must close. I vote for February 18th as the new date, but would love to hear votes for other mundane transaction closing dates.

Carolyn Linkov is a Principal in Eide Bailly’s National Tax Office, specializing in mergers and acquisitions.

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