Question

What tax and nontax advantages and disadvantages accrue when an acquiring corporation purchases all of a target​ corporation's stock for cash and subsequently liquidates the target​ corporation?

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Select the advantages of purchasing all of the target​ corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation.​ (Select all that​ apply.)

A. The acquiring corporation assumes the tax attributes of the target corporation.

B. The target corporation pays a​ tax, however the​ shareholders' receive the distribution as a​ tax-free distribution.

C. The only tax cost incurred to accomplish the transaction is that the target​ corporation's shareholders must recognize​ gain/loss on the sale of their target corporation stock.

D. No tax cost is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

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Select the disadvantages of purchasing all of the target​ corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation.​ (Select all that​ apply.)

A. A Sec. 338 election can be used to​ step-up the​ assets' inside​ bases, however this generally involves tax on the gain from the deemed Sec. 338 sale.

B. The acquiring corporation does not obtain a​ stepped-up basis in the acquired assets.

C. Tax is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

D. The stock basis​ "loss" cannot be deducted for five​ years, and therefore does not provide a current benefit to the acquiring corporation.

Answer 1

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