On October 9, 2024, Islame Hosny, a Counsel in Pryor Cashman’s Tax Group, authored an article titled “Tame the Tax Gross-Up’s Impact on Deal Economics” for Bloomberg Tax.

In the article, Islame highlights the importance of appreciating the mechanics of the tax gross-up formula. Because a slight change in any of the components of the formula could lead to a disproportionately larger change in the grossed-up payment, parties should navigate tax gross-up arrangements carefully. In addition to considering strategies such as placing a cap on the gross-up and taking the anti-gross-up into account, the article also touches on the effect that certain changes in the tax law could have on gross-up arrangements.

While the recent interest rate cut by the Federal Reserve — with more rate cuts expected to follow — will likely increase M&A deal activity, it may come at a time when key provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire. Islame explains that parties should pay close attention to expiring provisions of the TCJA that could affect deal economics by increasing the cost of the gross-up.

Read the full article by clicking the “Download a PDF of this piece” link above.