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Douglas S. Stransky, partner and leader of the Tax Practice Group, has published a new post on the LexisNexis blog examining a recurring problem in cross-border acquisitions: entity classification errors discovered in tax due diligence.

Using a hypothetical fact pattern in which a target’s foreign subsidiary never filed its check-the-box election, the post explains why classification mistakes persist, how a missing Form 5471 can leave the assessment statute open indefinitely under Internal Revenue Code Section 6501(c)(8), and how deal parties allocate an exposure no one can quantify. Doug compares the four principal risk allocation tools, purchase price reductions, special tax indemnities, escrows, and tax insurance, and discusses how the choice among them plays out in practice.

The post draws on themes from his LexisNexis treatise, International M&A and Joint Ventures: Key U.S. Taxation Issues, which pairs technical analysis with case studies, a cross-border tax due diligence checklist, sample acquisition agreement provisions, and guidance on tax insurance.

Read the full post »