Navigating the Tax Accounting Impact of Earn-Out Agreements

Navigating the Tax Accounting Impact of Earn-Out Agreements | Neil Bass

Acquisitions often involve contingent consideration agreements (aka earn-outs or claw-backs) which are typically designed to bridge the valuation gap between buyer and seller. U.S. Generally Accepted Accounting Principles (GAAP) usually requires contingent consideration assets and liabilities to be recorded at fair value on the acquisition date and to be revalued at each subsequent reporting period until the final settlement of the obligation. Changes in the fair value of such contingencies are typically recognized as increases or decreases to income for financial reporting purposes. As complicated as book accounting may be, the tax accounting for such contingencies is often more complicated.

Click here to read Neil Bass' full article...