Tax planning for business combinations, asset acquisitions, and corporate restructuring, the structure work that decides how a deal is taxed, done while the form of the transaction is still open.
A buyer of a corporation's stock inherits its tax basis and its tax history. A buyer of its assets takes a cost basis, fifteen years of amortization on the goodwill, and little of the history. Most transaction tax work moves a deal from one end toward the other: a section 338(h)(10) election or an F reorganization that lets a stock sale be taxed as an asset sale, or a reorganization that lets sellers take the buyer's stock without recognizing gain on it.
In an asset deal, or a stock deal taxed as one, the price is then allocated among seven classes of assets on Form 8594, which both sides file, so it is negotiated rather than assumed. Success-based fees are seventy percent deductible under a safe harbor elected on that year's return. In Illinois a buyer who does not notify the Department of Revenue at least ten business days before closing can be held for the seller's unpaid state taxes up to the price paid.
We model the alternatives before the letter of intent and represent clients in matters before the IRS when a position from a deal is examined.
Modeling of the tax consequences of stock purchases, asset purchases, mergers, and tax-deferred reorganizations, so the parties choose a structure with a clear view of gain recognition, basis, and the treatment of tax attributes.
Review of the target's filing positions, open audit periods, payroll and sales-and-use tax compliance, state and local nexus, and the status of net operating losses and credits, so exposures surface before they become the buyer's problem.
Drafting and negotiation of tax representations and warranties, indemnification for pre-closing taxes, transaction-tax allocation, straddle-period return responsibility, and cooperation provisions that allocate risk clearly between the parties.
Analysis of a combination's eligibility for tax-deferred reorganization treatment, what the statutory and regulatory requirements demand, and how that path compares with a taxable structure on the parties' particular facts.
Allocation of purchase price across acquired assets and the negotiation of the allocation between buyer and seller, with attention to how the agreed allocation affects each side's tax position.
Coordination of acquisition-vehicle and holding-company structure with the deal's tax objectives, including the consequences of choice of entity for the buyer and for the combined business going forward.
Tax structuring for transactions with operations or counterparties outside the United States, coordinating U.S. consequences with non-U.S. requirements and the firm's internationally capable footprint.
Support after signing, implementing the agreed structure, addressing integration and reporting questions, and representing clients in matters before the IRS if a transaction tax position is later examined.
For a subsidiary or an S corporation target, buyer and seller can jointly elect under section 338(h)(10) to treat the stock sale as an asset sale, a stepped-up basis for the buyer with contracts in place. It is due by the fifteenth day of the ninth month after the month of closing, and is irrevocable.
A 338(h)(10) election fails if the target's S election was ever defective, often found in diligence. The usual cure is an F reorganization: the shareholders form a new holding company, the old company becomes its disregarded subsidiary, and the buyer acquires that subsidiary, an asset purchase for tax and a stock purchase for every contract.
A target's net operating losses survive a stock purchase, but an ownership change of more than fifty percentage points caps their annual use at the company's equity value times the long-term tax-exempt rate, published monthly and usually low. Built-in gains and losses at the change date adjust the cap. We value losses after the cap.
Pre-closing taxes are the seller's; the year that straddles closing is split by closing the books that day, with property taxes prorated by the calendar. Transfer taxes fall where negotiated. The seller controls contests over its own years, and neither side may amend a return that shifts tax to the other without consent.
A merger is tax-free only if target shareholders keep a stake in the buyer. The regulations accept forty percent of the consideration in buyer stock as enough, a reverse triangular merger needs eighty percent of the target acquired for voting stock, and all cash is a sale. Cash taken in a qualifying deal is taxed.
Change-in-control payments to an executive that reach three times average pay over the prior five years are parachute payments: the deduction is lost and the recipient owes twenty percent excise tax on the excess over one times pay. A private company can cleanse them with a vote of over seventy-five percent of disinterested shareholders.
Before the letter of intent hardens, we model each candidate form, from a stock or asset deal to a forward or reverse merger or a deemed-asset election, against each side's basis, attributes, and exit math, because the day the term sheet says "stock purchase," most of the tax answer is already written.
The target's open years, nexus footprint, payroll and sales-tax posture, and loss carryforwards are quantified, and each exposure is translated into a number the deal can carry: an indemnity, an escrow, or dollars off the price.
The findings are then drafted into the agreement as pre-closing tax indemnities, straddle-period mechanics, transfer-tax allocation, election covenants, and the purchase-price allocation schedule both sides must live with on their returns.
After funds move, the structure is implemented, with elections filed on time, the allocation reported consistently, and attribute limitations tested, and the file is built so if the IRS examines the position years later, the defense was written at signing.
By the time a deal is signed, its tax return is mostly drafted, so we write that part first.
The way a transaction is structured drives how it is taxed for both buyer and seller. A stock purchase, an asset purchase, a merger, or a tax-free reorganization each carries different consequences for gain recognition, the buyer's basis in acquired assets, the treatment of losses and other tax attributes, and the timing of liabilities. Because these choices are difficult to unwind once a deal is signed, tax structure is best analyzed early, while the form of the transaction is still open.
In broad terms, an asset purchase generally lets the buyer take a stepped-up, cost basis in the acquired assets and choose which liabilities to assume, while the seller may face different treatment on the assets sold. A stock purchase generally transfers the target with its existing tax basis and attributes intact, along with its historical liabilities. The better choice depends on the parties' tax positions, the nature of the assets, and the deal's commercial goals, which is why each transaction is analyzed on its own facts.
Tax due diligence is a review of the target's tax history and exposures: filing positions, open audit periods, payroll and sales-and-use tax compliance, state and local nexus, and the status of any net operating losses or credits. It identifies risks that should be addressed in the purchase agreement through representations, indemnities, escrows, or purchase-price adjustments, so surprises do not surface after closing.
In some circumstances a transaction can be structured as a tax-deferred reorganization, but qualifying for that treatment depends on meeting specific statutory and regulatory requirements. We test the deal against those requirements and weigh the trade-offs against a taxable structure, so the parties understand the consequences before they commit. We do not promise a particular tax result, because it turns on the facts and current law.
Tax terms are negotiated throughout the agreement: tax representations and warranties, indemnification for pre-closing taxes, allocation of transaction taxes, responsibility for filing returns that straddle the closing date, cooperation provisions, and any purchase-price allocation. We draft and negotiate these provisions so responsibility for known and unknown tax exposures is allocated clearly between the parties.
Rarely at the deal itself, but the filings it generates are examined like any other. Form 8594 must be filed by both parties with matching allocations; a section 338 election is filed on Form 8023 by its deadline or is lost; an F reorganization's steps must be documented in the order they occurred. If a position from a deal is later examined, we represent clients in matters before the IRS and work within the agreement's indemnity and cooperation terms.
Representation in IRS examinations, appeals, and tax disputes, including positions taken in connection with a transaction.
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Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
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