DealLawyers.com Blog

Morrison & Foerster recently published its report on M&A in 2025 and Trends for 2026. One of the topics addressed in the report were the implications of the tax provisions of the One Big Beautiful Bill (OB3) for M&A deal structure and valuations.  Here’s an excerpt:

– Basis Recovery: OB3 restored 100% bonus depreciation for qualifying property, allowing businesses to immediately expense such capital expenditures. In addition to affecting potential target company values, this could make asset purchase structures more attractive to buyers.

– R&D Expensing: OB3 restored immediate expensing for domestic R&D costs, though taxpayers must still capitalize R&D costs incurred outside the U.S.

– Interest Deductions: OB3 generally increased business interest deductions by restoring a more generous EBITDA-based calculation for computing the business interest limitation (while tightening the rules in other respects).

– Qualified Small Business Stock: OB3 expanded tax incentives for investing in “small business” stock by (i) increasing the minimum gain exclusion to $15 million from $10 million, so that the exclusion generally is the greater of $15 million or 10 times basis, (ii) adding a phase-in starting after three years to the strict five-year holding period, and (iii) increasing the gross asset threshold to $75 million from $50 million.

– Renewable Energy Updates: OB3 substantially narrowed access to renewable energy tax incentives, making it substantially more difficult for certain projects to claim these credits.

– International Changes: OB3 revised certain controlled foreign corporation (“CFC”) provisions as well as other international tax rules, including the “Net CFC Tested Income” (previously referred to as “GILTI”), the base erosion and anti-abuse tax (“BEAT”), and foreign-derived intangible income (“FDII”) regimes. The formulas for calculating Net CFC Tested Income and FDII have been simplified, and the rates have been increased. Also relevant for M&A transactions, U.S. shareholders that dispose of CFC stock are now allocated their share of Subpart F and Net CFC Tested Income inclusions on a pro rata basis, whereas prior law allocated the inclusions exclusively to the shareholder on the last day of the tax year.

Other tax law changes highlighted in the report include the issuance of final regulations on the stock buyback excise tax that significantly narrowed its scope, the Treasury Department’s withdrawal of proposed regs that would have created more demanding standards for spin-offs, and the issuance of new guidance on how the corporate Alternative Minimum Tax applies to M&A transactions.

– John Jenkins