EXECUTIVE SUMMARY

A combination of pending actual and potential tax increases effective in 2013 may have a significant impact on transactional planning in the third and fourth quarters of 2012. These potential tax increases may affect deal terms and also motivate some buyers and sellers to move quickly to close transactions by year-end. Affected parties should evaluate their inventory of pending transactions and identify those transactions for which closing in 2012 may be of critical importance. Please feel free to direct any questions regarding the matters discussed in this client alert to any of the attorneys listed below under the heading Morrison & Foerster Contacts.

POTENTIAL TAX INCREASES -

The “Bush tax cuts” are currently set to expire on December 31, 2012. As a result, absent affirmative Congressional action, on January 1, 2013, the highest tax rate applicable to an individual taxpayer will increase from 35% to 39.6% for ordinary income, 15% to 39.6% for dividends, and 15% to 20% for long-term capital gains. At the same time, the already enacted tax increases under the 2010 healthcare reform package will take effect. Of particular significance to transactional activity will be the new 3.8% additional Medicare tax imposed on the investment income of individuals earning more than $200,000 and couples earning more than $250,000. The healthcare reform package also increases the existing Medicare tax on wages and salaries in excess of $200,000 for individuals and $250,000 for couples by 0.9% (from 2.9% to 3.8%). Each of these potential tax increases is summarized in the table below.

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