Middle Market M A by Kenneth H. Marks Robert T. Slee Christian W. Blees Michael R. Nall

Author:Kenneth H. Marks, Robert T. Slee, Christian W. Blees, Michael R. Nall
Language: eng
Format: epub
Published: 2018-07-30T00:00:00+00:00

There is no difference in annual amortization since both the patents and goodwill would be amortized over 15 years. However, as can be seen in this example, by specifically identifying the intangibles the company saves $200,000 in taxes when it sells.

Cost Segregation Studies on Real Estate

In the event the purchase transaction involves commercial real estate, the buyer may want to consider a cost segregation study. These studies are performed with the intent of identifying components of a commercial building that can be depreciated over shorter lives than the traditional 39-year life provided by the tax law. This is purely a timing advantage, but can reduce taxes in the early years following a purchase. Cost segregation studies should be performed following rules recognized by the IRS (and subsequently established through the court case Hospital Corporation of America v. Commissioner). These rules generally require that an independent engineering study be conducted to identify the components. There are a number of engineering companies and CPA firms that now offer these studies as a service to their clients.

TAX GLOSSARY AND REFERENCE

The following discussions are to support the core text of this chapter. Code Sections refer to the I.R.C., and Reg. sections refer to the Treasury Regulations that interpret and supplement the I.R.C. and are binding on taxpayers.

Asset allocation. In the case of any applicable asset acquisition, for purposes of determining both (1) the transferee's basis in such assets and (2) the gain or loss of the transferor with respect to such acquisition, the consideration received for such assets shall be allocated among such assets acquired in such acquisition in the same manner as amounts are allocated to assets under Section 338(b)(5). Code Section 1060(a).

Capitalization of assets. In general, capital expenditures are amounts paid for the acquisition of property or for a permanent improvement or betterment of the property extending beyond the tax year. Code Section 263. However, this doesn't mean that only expenditures that create or enhance separate and distinct assets are to be capitalized. Accordingly, the creation of a separate and distinct asset may be a sufficient, but isn't a necessary, condition to classification as a capital expenditure. Where expenditures produce significant benefits to the taxpayer extending beyond the tax year in question, the expenditures had to be capitalized. Indopco Inc. v. Commissioner (1992, S. Ct.) 69 AFTR 2d. 92-694.

Corporate capital gains tax rate. The alternative tax for capital gains under Section 1202 isn't imposed unless the top regular corporate tax rate imposed for the year is higher than 35 percent (determined without regard to the additional tax equal to the lesser of 5 percent or $11,750 on taxable income over $100,000 or the additional tax equal to the lesser of 3 percent or $100,000 on taxable income over $15,000,000). Code Sections 1201(a) and 11(b).

Cost segregation studies. Cost segregation studies generally produce listings or groups of assets, based on asset classes under ACRS (Accelerated Cost Recovery System) or MACRS (Modified Accelerated Cost Recovery System). The IRS has written audit procedure manuals that define

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