![]() The practice unit addresses the application of Sec. Special rules and exceptions apply to certain transaction costs described as "inherently facilitative" (capitalizable) or, alternatively, as nonfacilitative (potentially deductible), such as integration expenses, employee compensation, and amounts eligible under the " bright- line" date rule described in Regs. The term "facilitate" generally refers to a cost that, based on the facts and circumstances, is incurred to investigate or otherwise pursue a transaction (see Regs. Under this provision, a transaction is broadly defined to include acquisitions of the stock or assets of a trade or business, reorganizations or restructurings, borrowings, stock issuances, and changes to a company's capital structure. In general, taxpayers must capitalize costs that "facilitate" a transaction described in Regs. Therefore, taxpayers and practitioners should review the guidance and consider it when determining and substantiating the tax treatment of transaction costs. Although the practice unit is designed to provide IRS personnel with technical and procedural guidance in auditing transaction costs and may not be relied upon as legal authority, it nonetheless provides helpful insight regarding the approach and positions the IRS is likely to take on exam. The tax rules governing the treatment of these costs are complex, generally do not follow book treatment, and may require an extensive, facts- and- circumstances analysis to meet the subjective technical requirements and extensive documentation standards.Ĭonsequently, the area has historically generated significant uncertainty and IRS controversy. Taxpayers often incur millions of dollars in professional and advisory fees paid to bankers, attorneys, accountants, and other service providers in connection with corporate transactions. ![]() ![]() federal income tax treatment of transaction costs incurred in certain business transactions. The IFRIC recommended that common definitions should be developed for both terms and added to the Glossary as part of the Board’s annual improvements project.The IRS's Large Business and International Division in 2018 released a practice unit, "Examining a Transaction Costs Issue" (available at regarding the U.S. However, the IFRIC also noted that the terms ‘incremental’ and ‘directly attributable’ are used with similar but not identical meanings in many Standards and Interpretations. In view of the existing guidance, the IFRIC decided not to add this issue to its agenda. The IFRIC also noted that judgement will be required to determine which costs are related solely to other activities undertaken at the same time as issuing equity, such as becoming a public company or acquiring an exchange listing, and which are costs that relate jointly to both activities that must be allocated in accordance with paragraph 38. The IFRIC noted that only incremental costs directly attributable to issuing new equity instruments or acquiring previously outstanding equity instruments are related to an equity transaction in accordance with IAS 32. This issue relates specifically to the meaning of the terms ‘incremental’ and ‘directly attributable’. The IFRIC received a request for guidance on the extent of transaction costs to be accounted for as a deduction from equity in accordance with IAS 32 paragraph 37 and on how the requirements of IAS 32 paragraph 38 to allocate transaction costs that relate jointly to one or more transaction should be applied.
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