October 21, 2021

Tax Considerations: The M&A Implications of Pending Tax Proposals

This SRS Acquiom survey asked M&A professionals for input on the aspects of the Biden administration’s tax proposals that they expect to have the greatest impact on M&A if enacted. Here are some of the highlights:

– Increases in the top federal long-term capital gains tax rate increase are the greatest concern for respondents, with more than half (58%) expressing concern about the tax rate increasing from 20% to 25%.

– One-third (33%) of respondents are most concerned about the tax break for qualified small business stock (QSBS) retroactively ending, and nearly the same number (31%) of respondents are focused on the top marginal individual income tax rate rising to 39.6%.

– Expanded restrictions on carried interest are most important to 19% of respondents. The M&A professionals surveyed were also keeping a close watch on state tax policies: more than half (60%) expressed concern that state tax policies will follow federal precedents for the 2022 planning horizon.

– More than half of the M&A professionals surveyed (62%) are considering long-term capital gains as they evaluate cash flows and exit plans, while some are also monitoring tax basis step-ups (16%) and valuation gaps (12%).

The survey also suggests that dealmakers are accelerating transactions in order to complete them during the current year and avoid the impact of changes in tax laws, with 63% of respondents saying that their own or their clients’ deal activities are being accelerated into 2021 in anticipation of tax changes.

John Jenkins