Merger and Acquisition Tax Transaction

Abstract

The paper focuses on the M&A Tax Transaction Section 338 (h)(10). This paper represents an attempt to provide with enough basic information to handle the situations, and generally to keep the deal moving forward until the tax colleagues can come to the rescue. In keeping with that objective, this study provides an overview of the basics of common tax-free and taxable acquisition structures. Thus, the issues discussed are just a sampling of the various and nuanced tax considerations that will arise in a given deal. The point to remember is that the economic consequences of proper tax planning in the context of M&A tax transaction Section 338 (h) (10) can be significant, and it is therefore advisable to obtain tax advice.

Table of Contents

Introduction3

Procedure for Making A Section 338 (h)(10) Election4

Liquidations4

General Utility Doctrine7

Tax Structures10

Primary Types of Corporate Acquisitions11

Statutory Merger or Consolidation14

Asset Acquisition14

Stock Acquisition18

Statutory Share Exchange19

M&A Deals20

Background28

History29

Structuring Taxable Mergers: A Trap for the Unwary30

Objective/ purpose30

Cases30

Special Considerations in Accumulated Acquisitions33

Conclusion34

M&A Tax Transaction Section 338 (h)(10)

Introduction

The study is related to M&A Tax Transaction Section that is 338 (h)(10). This study represents an attempt to provide with enough basic information to handle the situations, and generally to keep the deal moving forward until the tax colleagues can come to the rescue. In keeping with that objective, this study provides an overview of the basics of common tax-free and taxable acquisition structures. There are all sorts of nuances, exceptions, and elaborations on these concepts that are not addressed. Keep in mind that the title of this study means what it says; my goal is not to make you an expert, just to give you enough to be dangerous. Section 338 permits (and in some cases requires) a corporation that makes a "qualified stock purchase" of another corporation to elect to treat such acquisition as an acquisition of assets rather than stock for federal tax purposes? Absent a 338 election, the target corporation's tax attributes generally remain intact and its basis and holding period for its assets do not change. A 338 election permits the purchaser to obtain a cost basis for the target's assets, but the purchaser will also begin a new holding period for the assets and will not acquire the target's tax attributes. In other words, a 338 election affords the purchasing corporation the convenience of a stock purchase with all of the tax consequences of an asset purchase.

An election may be made under one of two subsections of 338 elections under 338(g) may be made unilaterally by the purchasing corporation, whereas elections under 338(h)(10) must be jointly made by the seller and the purchaser. The basic consequences of either election are that the old target corporation is treated as transferring all of its assets and liabilities to a new target corporation, and the new target takes a stepped-up basis in the assets, equal to the price that the purchaser paid for the target's stock (adjusted for assumed liabilities)." The old target is liable for the tax on the deemed ...