Tax Treatment of Earnouts in M&A Transactions: Navigating Key Tax and Accounting Implications for Buyers and Sellers
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Tax Law
- event Date
Tuesday, July 15, 2025
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE/CPE webinar will guide attorneys and tax professionals on key tax considerations when structuring earnouts in M&A transactions for buyers and sellers. The panel will discuss key provisions when structuring earnouts, the tax and accounting issues for all parties involved, and best practices in ensuring tax compliance while also achieving the intended benefits for buyers and sellers.
Ms. Stieff focuses her practice on tax advisory and planning matters for domestic entities and individuals. She regularly provides transactional tax advice on a range of matters, including mergers, acquisitions, dispositions, joint ventures, private equity transactions, and fund formation. Ms. Stieff also works with clients on business formation and operational issues, including choice of entity, capital raises, equity incentive planning, and the like. In addition, she has experience working with clients to structure investments and transactions involving real estate investment trusts and qualified opportunity zone funds.
Mr. Britten has a significant experience in tax compliance, due diligence, structuring and planning and consulting He has assisted companies in solving many complex tax and business issues, including tax structuring of mergers and acquisitions, tax planning for financially distressed and bankrupt companies, foreign tax planning, with an emphasis on inbound structures, and state and local tax minimization. He has extensive technical knowledge and experience in assisting companies with transaction costs analysis and Section 382 limitation calculations. Prior to his tenure in public accounting, He was legal counsel for the North American group of a multinational publicly traded manufacturer. He has also held senior management and management level tax positions for Fortune 500 and others to large publicly traded corporations.
Mr. Hunt is a corporate and tax transactional attorney with over 13 years of experience advising startup, emerging growth, and middle-market companies across the full business lifecycle. He provides strategic counsel on entity formation, tax structuring, equity issuance, venture capital financing, and mergers and acquisitions. Mr. Hunt works with clients across a wide range of industries, with a particular focus on technology and life sciences startups. In addition to his legal practice, he serves as an adjunct professor at Boston University School of Law, where he teaches two courses in the Graduate Tax Program.
M&A transactions routinely include earnout provisions as a valuation-bridging mechanism to alleviate concerns by both parties about tendering or receiving a fair purchase price. However, attorneys and tax professionals must recognize the tax implications of earnouts in M&A transactions and plan accordingly when negotiating and structuring earnouts.
Earnouts can allow either an upward price adjustment post-closing--when sufficient value is created to justify a higher purchase amount--or innovative financing for an originally agreed upon price. Further, earnouts can deter disagreements during the negotiation of the deal price only to result in post-closing disputes over the earnout itself.
A sale of a privately held company involving an earnout raises a number of tax challenges, such as the tax treatment and calculation of gain each year, the classification of earnout payments for income tax purposes, and other critical tax considerations for earnouts in M&A transactions.
Listen as our panel discusses key provisions when structuring earnouts, the tax and accounting issues for all parties involved, and best practices to ensure tax compliance while also achieving the intended benefits for buyers and sellers.
- Earnouts in M&A transactions
- Tax considerations with earnouts and other deferred payments
- Ordinary income vs. capital gains
- Determining proper tax treatment
- Timing of the tax to seller
- Imputed interest
- Best practices for drafting tax provisions in the deal documents
The panel will discuss these and other key issues:
- Advantages and disadvantages of earnouts in M&A transactions
- Critical factors in determining the proper tax treatment of earnouts and other deferred payments
- Key tax considerations in structuring earnouts and other deferred payments in connection with an M&A deal
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