Question

In May 2018, George began searching for a trade or business to acquire. In anticipation of finding a suitable acquisition, George hired an investment banker to evaluate three potential businesses. He also hired a law firm to begin drafting regulatory approval documents for a target company. Eventually, George decided to purchase all of the assets of Brash Corporation. Brash and George entered into an acquisition agreement on December 1, 2018. Identify the relevant tax issues for George.

Answer 1

The most common form of mergers and acquisition is the asset purchase and the stock purchase.

Since George has purchased the assets of Brash Corporation there are some of the tax implications or tax related issues that George has to deal with.

• If the acquired company is a LLC, S Corp or partnership firm than this is possible that the acquired assets will be revalued as per the IRC Section 754 election in the case of a partnership or the IRS Section 338(g) or 338(h) (10).
• If the assets that are sold includes assets such as the income generating assets like inventory or the depreciated asset then the gains will be taxed at the ordinary taxes.
• There are other taxes such as sale and transfer taxes and such taxes are generally overlook. However such taxes form the 5 to 10% cost of sale.
• Since the assets are purchased then this may be required that elections should be made as to the accounting periods and methods.