Certain ownership interest acquisitions can be treated as the purchase of assets. The purchase of assets generally results in a step- up in the asset basis as the acquirer receives basis equal to the consideration paid and liabilities assumed. However, the target's assets carry over at their historic tax basis ("carryover basis," or "inside basis") the tax attributes (losses, credits, etc.) also carry forward but may be subject to certain limitations.Īsset-basis revaluation to fair value: An asset acquisition is the purchase of the assets of a business instead of the stock. An acquirer will receive a tax basis in the stock acquired ("outside basis") equal to the consideration paid. Stock-basis carryover: A stock acquisition generally refers to the acquisition of the ownership interest in a C corporation (or S corporation). There are two general taxable transaction forms-the stock deal and the asset deal. It is important to review the legal entity organizational chart before and after the acquisition. The first step is to understand the form of the transaction by reviewing the merger/purchase agreement as well as the relevant transaction step plan or memorandum. Implications for state and local, foreign, and other federal taxes (i.e., franchise, sales, employment, and property tax) should also be reviewed but are not within the scope of this article. federal income tax implications and challenges that the tax compliance team will have to address. When the transaction is complete, it is common for the M&A tax consultants to step back, and the engaged tax compliance adviser or industry tax director becomes responsible for correctly reflecting the income tax considerations of the M&A transaction in the tax returns. Since each transaction can result in unique tax issues, a one- size- fits- all approach rarely applies.
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