With the recent increase in merger and acquisition activity, a new service has been introduced by Plante & Moran: T-CAZ, or Transaction Cost AnalyZer. IRS regulations can allow the immediate deduction of many transaction-related costs, but contemporaneous documentation is required. T-CAZ will analyze acquisition costs and provide documentation to maximize the tax treatment of those costs.

The regulations affect acquisition transactions occurring for years ending on or after Dec. 31, 2003. Documentation required by the regulations must be completed to deduct any of the transaction costs, though taxpayers may always capitalize all costs if they desire. The new rules are more important when significant success-based fees are incurred due to contemporaneous documentation required by the regulations.

To determine the maximum allowable deduction under the regulations, as well as the most favorable depreciation and amortization on any amounts capitalized, consider a T-CAZ. A T-CAZ will generally result in larger deductions than allowed under GAAP reporting and meet IRS requirements for documentation.

The new rules are more defined than previous guidance provided by the IRS. Therefore, a T-CAZ should be considered, as deductions without documentation required by the regulations are at risk if challenged by the IRS — or would require non-contemporaneous documentation that may be rejected by the IRS. Documentation of success-based fees is specifically required to be completed on or before the due date of the taxpayer’s timely filed original federal income tax return (including extensions) for the taxable year during which the transaction closes.

Plante & Moran will work collaboratively with your staff to complete the T-CAZ. Services consist of an extensive review of your documentation and interviews with your personnel and external advisors connected with the transaction. This process allows us to construct a timeline of the transaction, identify the associated costs (internal and external), and determine whether these costs should be deducted, amortized, or permanently capitalized for federal income tax purposes.

At the conclusion of the project, you’ll be presented with a final deliverable of the results of the T-CAZ. This deliverable will include a summary report setting forth our appraisal; a technical memorandum detailing the legal basis of our treatment of costs associated with the transaction; a detailed spreadsheet illustrating all transaction costs as deductible, amortizable, or permanently capitalized; and all necessary compliance forms (Form 3115) to incorporate the results into your company’s tax return. For more information on conducting a T-CAZ and how it can help your organization, please contact Nathan Buchalski at 734.665.9494 or Jerry Jonckheere at 616.643.4044.