Newspapers of New England, Inc. is a family owned, multi-media company headquartered in Concord, New Hampshire. The company publishes daily and weekly newspapers and other niche publications that are distributed in New Hampshire, Massachusetts, and Vermont. In addition, the company has a commercial printing operation servicing the New England area.
Kreischer Miller was introduced to Newspapers of New England to provide audit, tax, and business advisory services. As part of our initial meeting with the company’s management team, we learned that Newspapers of New England was in the beginning stages of acquiring a daily newspaper in order to expand, grow, and strengthen their presence in one of their markets.
Based on our discussions with management, we discovered that the buyer was interested in completing the transaction as a stock deal versus an asset purchase. We explained the advantages and disadvantages of each type of transaction to Newspapers of New England, and determined that an asset purchase would provide a significant tax benefit to the company. By structuring the transaction as an asset purchase, the company would be able to take a tax deduction related to the any intangible assets purchased (i.e. goodwill and circulation structure).
Since the acquiree (or target) was an S Corporation for federal income tax purposes, we suggested that Newspapers of New England make a special election in the federal tax code known as a 338(h)(10) election. This tax election allows the assets being acquired to be stepped up in basis for the buyer, which in turn, allows the buyer to amortize the intangible assets for tax purposes. Essentially, this special tax election allowed the transaction to be consummated as a stock transaction, the desired treatment by the seller, and it also allowed Newspapers of New England to treat the transaction as if it were an asset purchase, its desired treatment.
Newspapers of New England was able to complete the transaction in a manner that resulted in a win-win situation for both the buyer and the seller, and thereby allowing the company to maximize its tax deduction for federal income tax purposes, resulting in significant tax savings.