IRS Provides 70% Safe Harbor For Deducting Success-Fees in Connection With Capital Restructurings and Acquisitions or Reorganizations


On April 8, 2011, the Internal Revenue Service (“IRS”) published Revenue Procedure 2011-29 (the “Revenue Procedure”) adopting a safe-harbor election whereby taxpayers may elect to deduct 70% of “success-fees” incurred in connection with certain capital restructurings and acquisitions or reorganizations.

Treasury regulations currently provide that certain costs incurred by a taxpayer in connection with certain capital restructurings and acquisitions or reorganizations must be capitalized rather than currently deducted for federal income tax purposes. Specifically, the capitalization rule applies to the following transactions: (1) an acquisition of assets that constitute a trade or business (whether the taxpayer is the acquirer in the acquisition or the target of the acquisition), (2) an acquisition by the taxpayer of an ownership interest in a business entity if, immediately after the acquisition, the taxpayer and the business entity are related for certain federal income tax purposes, (3) an acquisition of an ownership interest in the taxpayer (other than an acquisition by the taxpayer of an ownership interest in the taxpayer, whether by redemption or otherwise), (4) a restructuring, recapitalization, or reorganization of the capital structure of a business entity, (5) certain transfers to a corporation controlled by the transferor and certain transfers to a partnership (whether the taxpayer is the transferor or transferee), (6) a formation or organization of a disregarded entity, (7) an acquisition of capital, (8) a stock issuance, (9) a borrowing (including certain exchanges or modifications of debt), and (10) writing an option.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.