Tax Issues With M&A Representations, Warranties, and Indemnifications: Reps and Warranty Insurance, Proceeds and Tax Insurance
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Tax Law
- event Date
Tuesday, August 6, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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BARBRI is a NASBA CPE sponsor and this 110-minute webinar is accredited for 2.0 CPE credits.
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BARBRI is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).
This CLE/CPE course will guide tax counsel and advisers on the tax ramifications of representations, warranties, and indemnification provisions in mergers and acquisitions. The panel will discuss critical tax considerations for indemnification payments and losses and representation and warranty insurance.
With a background in both accounting and law, Mr. Gray focuses his practice on the tax aspects of corporate and partnership transactions, including mergers and acquisitions, reorganizations, restructuring, spin-offs, and equity and debt financings. Additionally, he advises clients on the special tax considerations related to regulated investment companies and real estate investment trusts. Mr. Gray’s experience also includes advising domestic and offshore clients on cross-border tax matters; representing hedge funds on fund structuring and the tax consequences of investments; advising private equity fund investors, including university endowments; negotiating, reviewing, and drafting the tax aspects of stock and asset purchase agreements, partnership agreements and credit agreements; and advising clients on the restructuring of financially troubled entities.
Mr. Clark focuses his practice on U.S. federal and international tax matters relating to taxable and tax-deferred acquisition, disposition, and restructuring transactions, as well as on income tax planning for closely-held businesses and high net worth individuals. Beyond his primary practice of transaction tax, Mr. Clark has advised clients throughout the life cycle of their businesses, from organization through exit, liquidation, or recapitalization. He has substantial experience as to choice of entity issues and the resulting impact on owner and investor tax treatment, and otherwise with the tax issues related to the formation of corporations, LLCs, general and limited partnerships and other joint venture arrangements. Mr. Clark has substantial experience in the drafting and analysis of tax provisions in syndicated lending arrangements and also regularly advises on the tax considerations of raising capital through other registered and unregistered capital markets transactions. In the mezzanine finance space, he has advised borrowers, lenders, and co-investors on tax considerations both as a result of the financing and the impacts and exposures resulting from the underlying M&A transaction.
Mr. Hochenberg is a partner in the Tax Department. His practice involves helping clients achieve all tax and other commercial objectives in an array of industries. Mr. Hochenberg often works with companies in the context of an M&A transaction and then becomes a day-to-day advisor to the organization and/or its owners. He also has extensive experience restructuring companies in distressed and non-distressed situations.
Mr. Berger joined Lockton in 2021 as Senior Vice President and Head of Tax Insurance on the industry-leading Transaction Liability team.
Representation and warranty provisions are critical components of M&A deals. The use of representation and warranty insurance (“RWI”) has drastically changed the landscape of how these important deal terms are negotiated. Counsel and advisers must carefully consider these provisions and their financial and tax implications when structuring purchase agreements.
In a traditional M&A transaction, a seller agrees to indemnify the buyer for breaches of the seller's representations and warranties, but this indemnification obligation is often subject to caps, exclusions, and time limits. Typically, the indemnity is backed by an escrow of a portion of the proceeds payable at the closing. Many transactions would also include a “pre-closing tax indemnity” that provides coverage – independent from the representations and warranties – for certain (generally historical) taxes of a target company.
The last decade has seen a huge uptick in the use of RWI in M&A deals. This is often coupled with a significant scaling back, or elimination, of traditional indemnity protections. Where it applies, the insurance outsources to the insurer the risk of loss from a breach of representations and warranties by sellers - enabling sellers to come closer to the “walkaway” construct that they would naturally want while leaving buyers protected.
RWI is not a solution for every transaction. Further, regular RWI policies do not cover everything – such as known taxes or tax issues. For certain known risks, separate tax insurance can be considered. It is important for counsel and advisers to understand the function of representations and warranties, the parameters of RWI and tax insurance and the associated key tax considerations.
Listen as our panel discusses critical tax provisions relating to purchase price payments and adjustments and key tax considerations for representation and warranty insurance.
- Tax considerations in M&A reps, warranty, and indemnification provisions
- Utilizing insurance and key tax provisions in reps and warranties policies
- Tax treatment of indemnification payment
- Tax treatment of insurance costs
- Best practices
The objective of this panel is to provide attendees with better knowledge, including market knowledge, of (among other things), the following key issues:
- How is representation and warranty insurance used in mergers and acquisitions?
- How does the tax classification of the target change the RWI approach?
- What items are excluded from RWI and how can potential exclusions be handled?
- What is the tax treatment of indemnification and insurance payments?
- How can tax insurance fill coverage gaps left by regular RWI?
Learning Objectives
After completing this course, you will be able to:
- Identify key tax considerations in drafting purchase agreements
- Recognize how representation and warranty insurance is used in M&As
- Identify key tax provisions in representation and warranty insurance policies
- Understand the tax treatment of indemnification payments
- Understand the tax treatment of insurance costs
- Field of Study: Taxes
- Level of Knowledge: Intermediate
- Advance Preparation: None
- Teaching Method: Seminar/Lecture
- Delivery Method: Group-Internet (via computer)
- Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
- Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Working knowledge of partnership/corporate structure, debt financing, merger, and liquidation.
Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.
Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).
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