![]() ![]() The investment banker provided the taxpayer with a letter in which it estimated the amount of time it spent on various activities relating to the transaction as follows: 92% of its time on identifying a buyer 2% of its time on drafting a fairness opinion 4% of its time on reviewing drafts of the merger agreement and 2% of its time on performing services after the identified bright- line date. After the transaction closed, the taxpayer paid the investment banker a success- based fee. In the CCA, the taxpayer engaged an investment banker to help it identify potential buyers. A covered transaction is (1) a taxable acquisition by the taxpayer of assets that constitute a trade or business (2) a taxable acquisition of at least 50% of the ownership interest in a business entity or (3) certain nontaxable reorganizations. 2011- 29, which allows those taxpayers to avoid the documentation rules as long as they treat 70% of the success- based fee as an amount that does not facilitate the transaction and capitalize the remainder as facilitative. Taxpayers that engage in a "covered transaction" may take advantage of a safe harbor provided by Rev. The regulations do not mandate that certain types of records be included, but they do state that the documentation must consist of supporting records (e.g., time records, itemized invoices, or other records) that identify (1) the activities performed by the service provider (2) the amount of the fee (or percentage of time) that is allocable to each of the various activities performed (3) where the date the activity was performed is relevant to understanding whether the activity facilitated the transaction, the amount of the fee (or percentage of time) that is allocable to the performance of that activity before and after the relevant date and (4) the name, business address, and business telephone number of the service provider. Such documentation must consist of more than merely an allocation between activities that facilitate the transaction and activities that do not facilitate the transaction. ![]() 1.263(a)- 5(f), a success- based fee is treated as facilitative, and therefore capitalized, unless the taxpayer maintains sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction. The regulations require taxpayers to satisfy a special documentation requirement for success- based fees, which are amounts paid that are contingent on the successful closing of a transaction. An amount is paid to facilitate a transaction if it is paid in the process of investigating or otherwise pursuing the transaction. 1.263(a)- 5(a), a taxpayer must capitalize an amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions. In Chief Counsel Advice (CCA) 201830011, the IRS concluded that a taxpayer was required to capitalize 100% of an investment banking fee because it failed to satisfy the documentation requirement for success- based fees under Regs. ![]()
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