Hello Monkeys,
How do you treat DTAs in the PPA of an M&A deal?
My current understanding below, but please correct me if I am wrong.
Stock sale:
1) DTAs from NOLs are not written down if entirely used by the acquirer. We will only written down the amount not used calculated as follow: Tax Rate * MAX(0, NOL Balance – Allowed Annual NOL Usage * Expiration Period in Years)
2) DTAs not from NOLs are not written down since differences between tax basis and book basis remain, but actually might increase due to assets being written up.
Asset Sale or 338(h) (10) election:
1) DTAs from NOLs are written down given NOLs will be used by the target's shareholders to decrease their taxes on the proceeds of the sale
2) DTAs not from NOLs are written down since differences between tax basis and book basis no longer exist in an asset sale due to tax basis step-up
