I.R.S. Adds New Theory Why Merger Termination Fees are Capital Rather than Deductible Costs

Volume 3 No 10    |    Read Article

By Nina Krauthamer and Kenneth Lobo

The I.R.S. and taxpayers have long argued whether fees paid by one party to another in a failed merger are capital costs or deductible costs. The consequences of capitalization may be severe, as sufficiently large capitalized costs may never be fully offset by future income. Recently, the I.R.S. enunciated a new theory in support of its capitalization position. Kenneth Lobo and Nina Krauthamer look at two recent internal memoranda indicating the I.R.S. will continue to characterize most merger termination costs as capital rather than deductible costs.    See more →