Liquidating distributions cash proceeds
2) Old T recognizes all the gain on the deemed disposition of its assets. Only a portion of the loss may be recognized equal to the loss attributed to the (30) shares sold before the disposition date.New T determines adjusted grossed-up basis similar to 338(h)(10). Acquisitions & Cost Recovery p.385 Failed acquisitions: Costs are incurred in investigating an acquisition and the transaction fails or is abandoned 165 enables an (ordinary? The 263 (Indopco) regulations - Costs incurred to complete a transaction must be capitalized and amortized.
Sale by the corporation of its assets and then distribution of these proceeds in liquidation. Distribution by the corporation of its assets in kind to the shareholders who then sell the assets. Possible structures for the asset acquisition p.357 1) Forward cash merger of Target into Acquirer for cash (or merger into a subsidiary of Acquirer). Possible conversion of the corporation to S corporation status (but note the S Corporation provision limitations, e.g., too much S Corp investment income after having been a C corp & having undistributed E&P). 359) re the sale of separate assets and not the sale of the "business" enterprise as one unit. Cf., the sale of shares of a corporation (one asset). Selling shareholders - capital gain treatment upon their sales of shares (& 453 treatment? Objective to enable a tax basis step-up for the assets (and no gain recognition because of General Utilities) upon the actual corporate liquidation.Tax Treatment of p.382 Acquisition Expenses Choices for the buyer: 1) Immediate tax deduction (ordinarily preferred). 3) Frozen in the buyers tax basis until the disposition of the asset (e.g., stock cost). But, a current deduction is permitted for costs to find a White Knight and to fight hostile takeover attempts. Further benefit available: dividends are taxed at low 20% rate (to individuals) & DRD; cf., interest.Tax treatment depends on the specific acquired assets & the financing arrangements. stock (248); executive retention payment arrangements. Targets Treatment of Acquisition Expenses Targets expenses deal costs (e.g., fair value opinion from Targets investment banker). LBOs Types of Transactions p.386 Objectives: Reduce the equity amount and increase the debt amount - which then facilitates: 1) deductible interest expense, and 2) greater net income per share (and, then, greater share value based on earnings per share times probable multiple). Types of Arrangements to Achieve Equity Reduction Possible options for buyout/buyback transactions: - Redemption of shares (to change ownership). - Facilitate a bootstrap acquisition of another enterprise (using internal cash).Problem (a) p.380 Asset Sale and Liquidation T: (1) adopts a plan of complete liquidation; (2) sells (at the corporate level) its 1.1 mil.non-cash assets (subject to 300x liabilities) to P for 800x cash (corporate level tax of $175,000 on gain ); and, (3) distributes the after-tax proceeds (next slide) to the three shareholders in proportion to their stockholdings (A&B have LTCG but C has loss). p.380 Asset Sale and Liquidation Proceeds to the three shareholders in proportion to their stockholdings (A&B have LTCG but C has loss).Ts proceeds as distributed: 800 net 200 cash = 1.0 mil less 175 tax = 825,000 A 412,500 (50%) less stock basis of 50 = 362,500 times 20% LTCG tax = 72,500 tax = 340,000 net. p.380 Asset Sale and Liquidation Tax basis to P for the acquired assets?
B 334,000 (40%) less stock basis of 50 = 284,000 times 20% LTCG tax = 56,800 tax = 277,200 net. Cost basis of $1.1 mil.: 800x for assets of 1.1 mil.
subsidiary (rather than a precedent 332 liquidation).
The Parent corporation is the seller of the stock of target subsidiary corp. Possible 338(h)(10) election - Treat the transaction as (1) if it were a sale of T's assets while a member of the seller's consolidated group, and, (2) S then liquidated tax-free into Acquiring Parent under 332.
Equivalent to a sale of assets and liquidation by the acquired corporation. Allocation of the Purchase Price for Tax Purposes 1060 requires an allocation of the purchase price paid for the assets acquired for cash. This fragmentation approach requires for the purchaser (1) a purchase price allocation & (2) a tax basis allocation among the various assets acquired by the purchaser. Class 7 assets: Goodwill & going concern value (also 197 assets). 2) Further response: 338 enactment no actual corporate liquidation required; treatment as an asset purchase. Code 338 - Elective Asset Purchase Tax Treatment Can a corporate shareholder get a tax basis step-up for indirectly acquired assets without the actual liquidation of the acquired corporation?
) followed by the shareholder sale of assets to Acquirer.
Tax Basis Allocation Planning Objectives p.358 Seller: If an income tax rate differential exists, a tax planning objective will be to allocate proceeds to those capital assets producing LTCG; but, no income tax rate differential exists for the selling corporation (35% tax rate) But, consider possible NOL & capital loss carryover utilization. Stock Acquisitions p.363 Purchaser buys stock of a corporation from the shareholders. If treated as a liquidation - therefore, gain recognition results as if the appreciated assets had been (i) distributed in kind to shareholder, and (ii) re-infused into a new corporation (351).