Tax issues play a significant role in mergers and acquisitions. For example:

1. Will the deal will be taxfree or taxable? If structured as a taxable acquisition, the shareholders of the target firm could take a tax hit and therefore might command a higher premium in the deal price.

2. What will happen to the target's tax attributes? If the deal is structured as an asset purchase and/or if the target is liquidated, the target's tax attributes (such as tax losses it might have accumulated) could be lost.

3. Stepup in basis. The acquirer will obtain a new, potentially higher basis in the target's assets; thus, the acquirer will be able to take higher depreciation deductions.—
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