![]() ![]() For example, a portion of an investment banker fee may be paid upon certain milestones being reached, such as the delivery of a fairness opinion, signing of the transaction documents, or shareholder approval.Īs explained in the memorandum, because there is a need for consistent treatment of compliance issues and to address what the IRS termed as taxpayers' "egregious" positions, the LB&I will apply a case-by-case risk assessment that is consistent with the treatment of other compliance issues. Updated guidance on the examination of milestone payments in the acquisition of businessesĪdditionally, the IRS withdrew LB&I-04-0114-001, "Updated Guidance on the Examination of Milestone Payments in the Acquisition of Businesses," published on January 27, 2014, because it prohibited LB&I examiners from challenging taxpayers' treatment of certain "eligible milestone payments." As defined in the directive, an eligible milestone payment is a non-refundable amount paid for investment banking services that is (1) contingent on the achievement of a milestone (whether the transaction is completed or not) and (2) creditable against a success-based fee. The directive instructed examiners not to challenge a taxpayer's treatment of success-based fees paid or incurred in tax years ending before April 8, 2011, with respect to a "covered transaction," when the taxpayer's original return position was to capitalize at least 30% of the total success-based fees it incurred on the transaction. ![]() The IRS also withdrew LB&I-04-0511-012, "Examination of Success-Based Fees in the Acquisition of Businesses," published on July 28, 2011, because the directive applies to the examination of transaction costs incurred before April 8, 2011, and it is unlikely that the IRS will examine transaction costs incurred before that date. The IRS explained that "he passage of time has made the guidance in this directive no longer relevant."Įxamination of success-based fees in the acquisition of businesses This directive instructed examiners to look to examination results of transaction costs before Decem(yielding a capitalization range of 50% to 65%) to determine whether an audit of current transaction costs was warranted. The IRS determined the directive was obsolete because it did not apply to costs incurred on or after December 31, 2003. The IRS withdrew a directive on the "Examination of Transaction Costs in the Acquisition of Businesses," which was published on May 20, 2005. In a memorandum for Large Business and International (LB&I) division employees, the IRS withdrew various LB&I directives, including some related to transaction costs.Įxamination of transaction costs in the acquisition of businesses IRS withdraws LB&I directives on transaction costs ![]()
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