A Primer: M&A Transactions, Essential Fundamental Structures for Federal Tax Basis Step Up

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In many merger and acquisition transactions, the acquirer or purchaser seeks to achieve fair market value for asset basis acquired directly or deemed acquired indirectly. The objective is to step-up the tax bases of assets in cases where the fair market value of the assets is in excess of their tax bases in the target or seller’s hands. The techniques for asset step-up can be either automatic or elective, depending in large part upon the tax classification of the parties to the transaction. Whether automatic or elective, advance planning is crucial for the desired outcome.

This article will explore certain fundamental techniques for asset basis step-up in merger and acquisition transactions. The techniques chosen for this article are the more common and fundamental ones.