Tax Basics of Buying and Selling a Corporation
Corporate acquisitions should always be considered on the basis of the economic soundness of the transaction. But, tax planning could improve a good situation. In a stock sale, the buyer receives any liabilities of the corporation as well. There are no changes for the seller in the target corporation's tax attributes. Usually, cash-for-stock is unrealistic. A down-payment and a promissory note is more common. Gains are reported in the taxable year received generally, but losses cannot be recognized by spreading them out. Interest is taxed to the seller as ordinary income. Another option is to form a new corporation which purchases or merges with the existing corporation. The regulations are still forthcoming regarding a step-up in basis with a stock purchase. Bootstrap acquisitions are another method of acquisition; there are possible tax consequences that should be considered carefully with these. The sale of assets is another method which benefits the buyer, much as the sale of stock benefits the seller. Section 337 liquidations avoid double tax treatment. Some planning alternatives are included to benefit buyers and sellers in special situations, to create cash-flow or to a pension plan for the seller.
Publication Name: Journal of Accountancy
Returning to form: untangling the tax jurisprudence of bootstrap acquisitions
Judicial doctrine governing the taxation of corporate bootstrap acquisitions should be changed so that form is the only controlling rule. The jurisprudence in this area is confused and unpredictable because the courts alternately apply substance and form or inappropriately apply substance doctrines and well known tax law cases. Taxpayers should be able to chose one of the three bootstrap forms and rely upon predictable tax consequences. The only exception to the rule of form that should be allowed is where the closed transaction test is applicable.
Publication Name: Virginia Tax Review
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