Tax News & Views Checking the M&A To-do list Roundup

December 29, 2022

Initial Guidance Limits Buyback Tax on M&A Deals to Boot - Chandra Wallace, Tax Notes ($):

To the extent that the transaction is subject to section 354 or 355 treatment and the shareholders don’t pay any tax on the exchange of their shares for what they’re getting in return, companies can reduce their stock repurchase excise tax base by the value of the stock that was exchanged, Scott Levine of Jones Day told Tax Notes. That portion is effectively exempt from the tax, he said.

“Only the portion of the stock repurchased with the boot goes into the excise tax base,” Robert Willens of Robert Willens LLC told Tax Notes.

This 1% excise tax applies to stock redemptions by publicly-traded corporations.


Tax benefits for wealthy earners in SECURE 2.0 - Lynnley Browning, Accounting Today:

For starters, there's an unusual provision that converts unused college savings plans into tax-free Roth accounts. Meanwhile, the penalties for failing to take required minimum distributions from individual retirement accounts and 401(k) plans will drop by half. Companies will be allowed to make matching contributions to workers' employer-sponsored Roth accounts. Starting in 2024, Roth 401(k)s won't face RMDs. With other plans, the age to start taking minimum distributions rises to 73 in 2023 and 75 in 2033 — more years for retirement accounts to grow in value.

On other fronts beneficial to higher earners, annual distributions won't be required from an employer-sponsored Roth starting in 2024. Meanwhile, beginning next year, people age 70½ or older can make a one-time gift up to $50,000 from a taxable IRA to a popular type of trust. While the gift isn't deductible, it counts toward an individual's RMDs and thus can keep a donor from being pushed into a higher tax bracket when taking distributions. 

Agreement to Include Retirement Provisions, No Business Tax Relief- Mel Schwarz, Eide Bailly. "Beginning after 2024, increase the limit on catch-up contributions to the greater of $10,000 or 50%more than the regular catch-up amount for 2025 for individuals ages 60-63 ($5,000 for SIMPLE plans). Both amounts would be indexed for inflation after 2025."


Treasury Issues Interim AMT Guidance Including Safe Harbor - Natalie Olivo, Law360 Tax Authority ($):

Enacted under the Inflation Reduction Act  in August, the AMT will kick in if companies report more than $1 billion in global adjusted financial statement income, or AFSI — as averaged over a three-year period — and pay less in tax than 15% of that amount. The "adjusted" in AFSI relates to how the measure would allow companies to reduce tax payments through certain credits and net operating losses from previous years.

Under the guidance's safe harbor, which Treasury issued in a notice ahead of upcoming proposed regulations, companies can make certain modifications to the statute's thresholds for determining whether the AMT applies to them for the upcoming taxable year.


IRS Updates FAQ About Form 1099-K - Lauren Loricchio, Tax Notes ($).

The update comes shortly after the agency delayed the implementation of the lowered reporting threshold for “third-party settlement organizations” over concerns that it could cause confusion during the upcoming tax return filing season.


In the updated fact sheet, the IRS defines a third-party settlement organization as “the central organization that has the contractual obligation to make payments to participating payees (generally, a merchant or business) of third-party network transactions.” The IRS said an example would be an app that handles the transfer of money.

Link: FS-2022-41


Few crypto gains appear on tax returns. That’s changing — but not this year - Julie Zauzer Weill, Washington Post. "More than 5 million people were trading crypto between 2014 and 2015, but fewer than 1,000 taxpayers per year reported earnings from those trades on their tax returns in that period, according to estimates by federal prosecutors and the most recent public tally by federal authorities. They note that the number of people reporting income from crypto has increased since then, but not even close to enough."

Considering the size of crypto losses in 2022, traders may be less shy about reporting trades on this year's returns.

Green-Energy Boom Hinges on Obscure Tax Rules - Ed Ballard, Wall Street Journal. "The plan allows companies that are eligible for tax credits to sell them. The ultimate financial impact of the Inflation Reduction Act depends in part on that provision creating a new market for tax credits and making it easier for renewable developers to raise money."

Iowa tax reforms for 2023 include individual income tax rate reductions - Mary Stroka, The Center Square. "The state is reducing the rates from nine to four categories. The top rate will drop from 8.53% to 6%."


IRS Offers Up a Breather With Form 1099-K Tax Reporting Delay - Kelly Phillips Erb, Bloomberg. "The initial change in the law applies to third-party reporting, not your individual tax obligations. It has always been the case that you must report your taxable income, whether it is payable to you in cash, on a credit card, through a business checking account, or over a cryptocurrency platform. That obligation starts at the first dollar."

Another Change for Filing Form 1099-K - Annette Nellen, 21st Century Taxation. "Earlier this year, I suggested that the IRS create a new form or schedule for reconciling incorrect information returns to avoid unnecessary issuance of CP 2000 notices and provide greater certainly to taxpayers and practitioners that they were properly filing the return."

Make retirement plans now to claim the Saver's Credit - Kay Bell, Don't Mess With Taxes. "As noted, the Saver's Credit could be as much as $1,000. To get that amount, you must contribute at least $2,000 to your qualifying retirement accounts. When both spouses each contribute at least $2,000 to their eligible retirement savings, the credit is double, as each can claim $1,000."


Businesswoman Sentenced For Evading $500,000 In Payroll Taxes - Rebekah Barton, TaxBuzz (defendant name omitted). "GVA withheld payroll taxes from its employees' paychecks, but (Defendant) did not pay all of the employment taxes that were due. Instead, she used those funds to pay her mortgage, pay for various vehicles, and purchase other household items." 

Medicaid Estate Recovery and Trusts - Roger McEowen, Agricultural Law and Taxation Blog. "The rules surrounding these types of trusts are quite complex and are constantly changing given the public policy concerns that surround the creation of these types of trusts."

How You Can Help Support the Center For Taxpayer Rights - Leslie Book, Procedurally Taxing. "The one area that is still difficult to fundraise for is the LITC Support Center, which provides technical support for Low Income Taxpayer Clinics (LITCs) around the country.  In addition to filing amicus briefs on important taxpayer rights issues and participating in high-impact litigation, the LITC Support Center also operates LITC Connect, the 'dating app' for LITCs and prospective volunteers."


New Owner Is Responsible for Company's Tax Liability, BTA Finds - Christopher Jardine, Tax Notes ($):

In a December 19 decision in Brooks v. McClain, the Ohio BTA found that Tara Brooks, who purchased Triangle HVAC Inc. in 2013, is a successor and responsible party for Triangle’s unremitted employer withholding tax for 2011 to 2012 and upheld the Department of Taxation's derivative assessments against Brooks.


Brooks challenged the assessments, arguing that Andrew WeistTriangle's previous owner, was responsible for the assessments and that she was not a responsible party because the at-issue period occurred before she became the company's new owner. According to Brooks, the purchase agreement included a clause indicating that Weist was liable for the assessments.

An unhappy result that underlines the importance of tax due diligence when in business acquisitions. 

Related: Preparing for Potential Merger & Acquisition Activity.


I need to find my to-do list. Today is Still Need To Do Day. "In the downtime between opening presents and banging pots and pans, consider what you can get done in 24 hours this December 29."

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