ctax-2019-ppt_ch05_part_2_of_2.pptx - Chapter 5 Corporate...

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Chapter 5Corporate Distributions: Liquidations2019EditionPart 2 of 21
2Notes to InstructorPart 2 of 2Topics included338 Stock purchase treated as asset purchase§338(h)(10)Problems included5-29
3Basis Anomaly, Oddity, Glitch, Etc.P buys S for $4 millionS’s basis in assets: either $3 or $5 millionSell stock or sell assets?Sales PriceStock BasisAsset BasisResult4404314(5)(1)
4Liquidation of SubsidiaryTarget CorporationWhaley Mill & ElevatorFMVAdjusted basisAsset $210,000$300,000Kimbell Diamond MillingStock purchase treated as asset purchase
5Liquidation of SubsidiaryAcquiringHow acquire basis of $600,000 for $270,000?TargetAdjusted AssetFMVBasis#1$200,000$ 30,000#270,000400,000
6Stock Purchase Treated as a Purchase of AssetsSettled controversies with enactment of §338 in 1982Effect of §338Allows CORPORATEbuyer to treat purchase of stock as purchase of assetsEffect in general: Basis of target’s assets is equal to the purchase price of the stock (plus any liabilities of the target)Obtain treatment simply by making an electionNeed not liquidate the target
7Stock Purchase Treated as a Purchase of AssetsOptions for taxable acquisition of stockNo§338 election; liquidate sub under§332Result: a carryover of the sub's basis in the assets as well as its other tax attributesNo§338 election; keep the sub alive Result: sub's basis for its assets and other attributes unchangedMake§338 election; keep sub alive Result: sub’s basis for its assets generally equal to the price paid for the sub's stock Tax attributes of the sub eliminated
8Stock Purchase Treated as an Asset PurchaseStock purchase treated as an asset purchase (§ 338)Requirements: Qualified Stock PurchaseP acquires 80% of T's stock in 12 month period by purchase from an unrelated party Timely election 15thday of ninth month after parent acquires control (after acquisition date (date obtained 80%))Form 8023
9Stock Purchase Treated as an Asset Purchase (§338)Effect of election Stock purchase treated as asset purchase and basis is equal to cost of stock Deemed sale by old T of its assets to new T for FMVTOld TNew TAssetsFMV
10Stock Purchase Treated as an Asset Purchase (§338)Effect of election Deemed sale by old T of its assets to new T for FMVSale is fully taxable transactionOld T recognizes gain and loss (produces tax)Tax liability falls on Old T (but born by P)Basis of T's assets is generally FMV (AGUB)Old T is goneNew T emerges with none of prior attributes
11§338: Filing after Deemed SaleFilingOld T’s tax year closes on acquisition date (6/17)Files a final short-period tax return (e.g., 1/1 thru 6/17)Return includes gain or loss on the deemed saleDeemed sale is last transaction of the year New T Files own return for remainder of year (e.g., 6/18 –12/31)ResultTwo returns for same corp during the yearSpecial rule if target is member of consolidated group that files consolidated return
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