Question

What are some tax implications that should be considered when a company is considering a merger or acquisition?

Answer 1

Answer-

Tax implications that should be considered when a company is considering a merger or acquisition can be categorized by

1) Asset sale - This asset sale is favorable to buyers when it comes to taxes as the assets can be purchased on fair value which allows for higher tax deductions on depreciation and amortization.The buyer will try to allocate most of the purchase price to short-lived assets like inventotry, machinery and equipment to ge more benefits.

2) Stock sale- This stock sale will incur less taxes than the asset sale. The buyer will have to assume all liabilities in stock sale and will not be able to treat the underlying assets to fair market value. In general the seller will benefit from capital transaction in stock sale.

3) Stock sale with 338 or 338(h)(10) elections- in this case the outcome of asset sale is achieved through stock transfer transaction. It is beneficial when dealt for commercial transaction as one can avert the transfer the ownership of individual assets.