Ch14: TaBS, Taxable Acquisitions

Question 1

Step-up

Answer 1

An increase in the basis of the acquired assets to FmV or to the purchase price; the assets can be depreciated from a base equal to FmV at the time of acquisition.

[Purchase Price - Basis, T]

Question 2

Taxable Acquisition Methods for Freestanding C. Corp

Answer 2

1. taxable asset acquisition without liquidating the target
2. taxable asset acquisition with liquidating the target
3. taxable stock acquisition with a 338 election
4. taxable stock acquisition without a 338 election

Question 3

Taxable Asset Acquisition: NO Liquidation

Answer 3

consideration: cash
taxable gain at the corporate level
NO taxable gain to target shareholders
step-up in the tax basis of the target's assets
target's tax attributes SURVIVE
tax-deductible Goodwill

Question 4

Taxable Asset Acquisition: Liquidation

Answer 4

consideration: cash
taxable gain at the corporate level
taxable gain to target shareholders
step-up in the tax basis of the target's assets
target's tax attributes DON'T survive
tax-deductible Goodwill

Question 5

Taxable Stock Acquisition: Section 338 Election

Answer 5

Purchase the stock of the target; equal to the stock purchase price.

consideration: cash
taxable gain at the corporate level
taxable gain to target shareholders
step-up in the tax basis of the target's assets
target's tax attributes DON'T survive
tax-deductible Goodwill

Question 6

Taxable Stock Acquisition: NO Section 338 Election

Answer 6

consideration: cash
NO taxable gain at the corporate level
taxable gain to target shareholders
NO step-up in the tax basis of the target's assets
target's tax attributes SURVIVE
NO tax-deductible Goodwill

Question 7

Taxable Stock Sale: Issues

Answer 7

1. will the transaction be taxable to the target shareholders?
2. If the transaction is taxable, how large will the gain be?
3. Is the gain long-term or short-term?

Question 8

Taxable Asset Acquisition: Nontax pros and cons

Answer 8

Nontax Pros:
An asset acquisition may allow the buyer to avoid some of the target’s liabilities, particularly unrecorded and recorded contingencies. But regulations may not allow the buyer to completely avoid the target’s liabilities.

Nontax Cons:
Asset acquisitions can involve costs related to title transfers, costs related to untransferrable assets, and costs related to assets that won’t transfer without third-party consent.

Question 9

Taxable Stock Acquisition: Nontax pros and cons

Answer 9

Nontax Pros:
The buyer’s transaction costs may be lower than costs from an assets sale.
The target’s assets are acquired indirectly through ownership of its stock; NO title transfers.

Nontax Cons:
An acquisition via the target’s stock requires the assumption of its liabilities.
Taxable Stock Acquisition, without a 338 election: the buyer will maintain GAAP Goodwill that is not tax-deductible.

Question 10

Gross Assets

Answer 10

Total assets; includes liabilities

Question 11

Net Assets

Answer 11

Shareholder Equity = Assets - Liabilities

Question 12

ADSP, Aggregate Deemed Sale Price

Answer 12

The sale price of the target’s assets in a taxable stock acquisition in which Section 338 is made.

[PRICE.stock + Liabilities - t.c x (Asset Basis)] / (1 - t.c)