If Elon Musk Settles With Twitter, Taxes Will Play A Part - Social Media Explorer
If Elon Musk Settles With Twitter, Taxes Will Play A Part
If Elon Musk Settles With Twitter, Taxes Will Play A Part

Elon Musk speaks and tweets about taxes a lot, including how much Tesla stock should sell for and high California taxes. It also discusses why Tesla moved to Texas with him. How could the tax situation in Musk’s on-again and off-again attempt to purchase Twitter play out?

In a match as ill-fated as the Johnny Depp – Amber Heard drama, the famously feisty Musk has tried to back out of his $44 billion deal to buy the social media platform. Twitter announced Friday its quarterly earnings and is now taking Musk to court. This lawsuit is designed to force the billionaire mercenary to honor his contract.

Is there any tax deduction in the $44 Billion deal?

The tax consequences are complex and varied, regardless of whether you win, lose, or settle. It depends on what details Musk as the payer can or cannot deduct deal breakup fees from a business expense or loss.

How did this happen?

Musk first offered to purchase social media giant. Next, the worker and public outrage, pushback and other issues were addressed. Eventually, there was a deal struck for the world’s top billionaire to pay $44 billion for the platform. Musk then complained about bots, and the lack of evidence to prove that he had bought any accounts.

Meanwhile, the economy wasn’t exactly improving, so some say that Musk was haggling to renegotiate. Musk then canceled the deal and filed a Securities and Exchange Commission file announcing his cancellation of the huge purchase.

Twitter sued like clockwork. It’s facing up to be quite a battle. Musk could call it off by paying a kill fee, which is a non-refundable deposit of $1 billion. Musk and Twitter agreed that, if one party withdraws from the deal they would both have to pay $1 billion.

Musk’s lawyer, Mike Ringler, stated that Must called off the deal because Musk does not believe that Twitter provided adequate information about how many fake and spam accounts populate the platform. In a letter to Twitter, Ringler claimed that the company was in “material breach of multiple provisions” of its agreement with Musk.

Musk claims that Twitter did not provide the required information despite the agreed price. That should be enough to release him from any liability. It’s been the deal of the year, with many for and against votes and a media firestorm from throngs who were horrified or delighted that Musk was plopping down billions to take on Twitter.

The basis for your purchase is a price, not a deduction. Even legal fees must be added to purchase prices in these corporate transactions. Even though most legal costs are business-related, they can still be claimed as expenses.

What happens if Musk backs out? He can, according to the tax law, write off $1 billion of his legal fees if he needs it. He can also write off the legal costs incurred in the lawsuit that Twitter has just filed. He can now deduct all legal fees and deal expenses, which he couldn’t claim while his deal with Twitter was still active. The IRS requires that these costs be capitalized as soon as the deal has been negotiated, documented, and closed. However, if the deal fails, the expense can be capitalized but you may also write it off.

If a deal is not completed, termination fees will be charged. Capitalization is often irrelevant. A court may block a proposed merger and the acquirer will lose a few billion. However, the courts are usually able to deduct the amount of the split-up cost. In some instances, however, the IRS may consider fees paid for terminating a deal as costs of performing a second transaction. Tax rules may require that capitalization be done on costs used to acquire more than 50% in a company entity.

We’ll know more about how this may play out sooner than Musk wanted as Twitter won its bid for a quick trial, which is set to take place in a Delaware court over five days in October. Keep checking back.

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About the Author

Adam is an owner at Nanohydr8. He really loves comedy and satire, and the written word in general.

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