Rev. Proc. 2011-29 offers a safe harbor that may simplify the analysis of-and possibly results in-favorable treatment for fees within its scope. However, one must keep in mind that it does not address the treating all acquisition cost issues. Also, a taxpayer may be entitled to more favorable treatment than the income procedure provides.
Accordingly, Rev. Proc. 2011-29 suits, than replaces rather, an evaluation of acquisition-related costs. Immediately after it issued Rev. Proc. 2011-29, the IRS aimed the Large Business & International (LB&I) examiners July 28 never to task a taxpayer’s treatment of success-based fees paid or incurred regarding the transactions explained within Rev. Proc.
2011-29 for fees incurred in taxable years finished before April 8, 2011-provided that the taxpayer’s original come back position to capitalize such fees constant with the safe harbor amount explained in Rev. Proc. Treasury Regulation Sec. 1.263(a)-5 (the Transaction Cost Regulations), generally requires a taxpayer to capitalize costs incurred to research or otherwise pursue a variety of corporate and business transactions, including certain stock acquisitions, asset acquisitions, reorganizations, Borrowings and IPOs.
Put yet another way, the Transaction Cost Regulations don’t require capitalization for fees and costs incurred before the bright line day and are for non-inherently facilitative activities. To consider benefit of this exemption to the overall rule of capitalization, a taxpayer executing a covered deal must be able to allocate a portion of its fees to non-inherently facilitative activities performed before the bright line time. To allocate success-based fees to Rev prior. Proc.
2011-29, a taxpayer generally would obtain an allocation letter from the provider and assemble other documentation corroborating the provider’s activities performed for the taxpayer. The Transaction Cost Regulations give some hazy guidelines about the sufficiency of the records under this rule, needing that the documents consist of “supporting records” that are more than “merely an allocation” of your time. Rev. Proc. 2011-29 addresses the doubt of the substantive documents necessity by permitting a taxpayer to choose to treat 70 percent of its success-based fees for a covered transaction as a quantity that will not facilitate the protected transaction.
The remaining 30 % must be capitalized. This election is in lieu of the substantive paperwork requirement for success-based fees referred to above. A taxpayer makes this election on a transaction-by-transaction basis and must connect a declaration to the original federal tax return for the taxable 12 months the success-based fee is paid or incurred. The statement must affirm that the taxpayer is electing the safe harbor, identify the state and transaction the success-based fee amounts that are deducted and capitalized. The election is irrevocable and only pertains to the transaction for which the election is manufactured.
- Interest in scalability, big data, high throughput systems, high availability
- Management quotes
- Senior Level (2266)
- Received telephone costs, $220
Rev. Proc. 2011-29 state governments that an election will not constitute a change in approach to accounting, a Sec hence. 481(a) adjustment is not permitted or required. Reg. Sec. 1.263(a)-5(e)(3) in taxable years finished before April 8, 2011, if the taxpayer’s original come back position is constant with Rev. Proc. 2011-29. For such fees in taxable years ended before April 8, 2011, if a taxpayer capitalizes at least 30 percent on its tax come back, IRS examiners are aimed not to concern the allocation. 2011-29 is effective. Such paperwork must maintain place before the date the tax return is filed.
Also, if an investment banker fee has non-success-based components (e.g., fairness opinion fees, milestone obligations) and success-based components, Rev. Proc. While Rev. Proc. 2011-29 requires an electing taxpayer to capitalize 30 percent of its success-based fees, it generally does not describe the treating the rest of the 70 percent. Accordingly, it’s important to determine whether that 70 percent is deductible under IRC Sec.
162, amortizable over 15 years under IRC Sec. 195 or treated in another manner. Also, it might be necessary to allocate within the 70 percent portion if it consists of more than one kind of service. For example, if an investment banker undertook services regarding the issuance of debts in addition to its pre-bright collection time investigatory services, although it is not clear, the 70 percent part might be allocated between borrowing services and investigatory services. For instance, if a U.S. U.S. subsidiary that undertakes the acquisition, determining whether such costs are incurred by the U.S.
