Article
SPAC transactions: Tax and operational considerations for target companies
May 24, 2021 · Authored by Kevin Hasegawa
The public offering vehicle known as a special purpose acquisition corporation (SPAC) — also called a blank check company — has again become a popular way for companies to pursue an initial public offering (IPO).
While SPAC transactions can offer many benefits, there are several tax and operational considerations private companies should analyze before pursuing a transaction, such as:
- What’s a SPAC and how does it work?
- How might a SPAC be structured?
- What happens to SPAC stock after a merger?
- What are tax-loss carryforwards and circular basis rules?
- How are SPACs taxed?
- How does a merger impact SPAC executive and management compensation?
- What are administrative issues to consider during a transition?
Below, learn key tax challenges and opportunities related to SPAC transactions and best practices SPACs and target companies can apply to stay compliant.
What’s a SPAC and how does one work?
A SPAC is a type of shell company or other investment vehicle formed to raise money from investors through an IPO. The SPAC is then used to acquire private companies, known as target companies, without having to go through a formal IPO process.
At the time of the IPO, SPACs typically don’t have existing business operations. The SPAC’s purpose is to identify and acquire businesses that meet the SPAC’s investment objectives. The private operating target company effectively becomes a publicly traded company, generally via a merger transaction.
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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.