Your client is a C corporation. Your client has identified two potential acquisition targets that it intends to buy: â¨
Target 1 â an LLC taxed as a partnership. Assume that all of the value of the LLC is in the form of goodwill for which the LLC has an aggregate âinsideâ basis of $0. Further assume that the members have an aggregate âoutsideâ basis of $0 in their membership interests. The purchase price for the company is $80M. â¨
Target 2 â a C corporation. Assume that all of the value of the corporation is in the form of goodwill for which the corporation has an aggregate basis of $0. Further assume that
the corporation has $0 of current or accumulated E&P and that the stockholders have an aggregate basis of $0 in their stock. The purchase price for the company is $65M.
Questions to address in your presentation to the Board of Directors:
Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 1âs (a) assets and (b) LLC interests in a transaction where the only consideration paid by the buyer is cash.
Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 2âs (a) assets and (b) stock in a transaction where the only consideration paid by the buyer is cash. â¨
Please describe the potential tax consequences to Target 1 and its members of the sale of Target 1âs (a) assets and (b) membership interests in a transaction where the only consideration paid by buyer is cash. â¨
Please describe the potential tax consequences to Target 2 and its shareholders of the sale of Target 2âs (a) assets and (b) stock in a transaction where the only consideration paid by buyer is cash. â¨
Assume that in any asset sale the buyer will be able to amortize any acquired goodwill over 15 years. Assume that the buyerâs applicable tax rate is 42% (federal and state) and that interest rates are 0%. How should the buyerâs Board of Directors think about a step- up in the basis of the assets? How much more would the buyer pay to achieve a basis step up? â¨
Compare the after-tax consequences (if any difference) to the selling members of Target 1 under the following structures:
Sale of Target 1âs assets for cash followed by the liquidation of Target 1. â¨
Sale of Target 1âs membership interests for cash. â¨
Compare the after-tax consequences (if any difference) to the selling stockholders under the following structures:
Sale of Target 2âs assets for cash followed by the liquidation of Target 2. â¨
Sale of Target 2âs share for cash. â¨
Assume that the consideration for each transaction will be paid as follows:
70% stock of buyer (a C corporation). â¨
30% cash. â¨
Describe (in general terms) how a deal to acquire each of Target 1 and Target 2 might be structured in order to allow the selling members of Target 1 and stockholders of Target 2 to defer recognizing the gain on the receipt of the stock of buyer.
Your client is a C corporation. Your client has identified two potential acquisition targets that it intends to buy: â¨
Target 1 â an LLC taxed as a partnership. Assume that all of the value of the LLC is in the form of goodwill for which the LLC has an aggregate âinsideâ basis of $0. Further assume that the members have an aggregate âoutsideâ basis of $0 in their membership interests. The purchase price for the company is $80M. â¨
Target 2 â a C corporation. Assume that all of the value of the corporation is in the form of goodwill for which the corporation has an aggregate basis of $0. Further assume that
the corporation has $0 of current or accumulated E&P and that the stockholders have an aggregate basis of $0 in their stock. The purchase price for the company is $65M.
Questions to address in your presentation to the Board of Directors:
Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 1âs (a) assets and (b) LLC interests in a transaction where the only consideration paid by the buyer is cash.
Please describe the potential tax consequences to the buyer (e.g., basis step up, consequences on a future sale by the buyer) of the purchase of Target 2âs (a) assets and (b) stock in a transaction where the only consideration paid by the buyer is cash. â¨
Please describe the potential tax consequences to Target 1 and its members of the sale of Target 1âs (a) assets and (b) membership interests in a transaction where the only consideration paid by buyer is cash. â¨
Please describe the potential tax consequences to Target 2 and its shareholders of the sale of Target 2âs (a) assets and (b) stock in a transaction where the only consideration paid by buyer is cash. â¨
Assume that in any asset sale the buyer will be able to amortize any acquired goodwill over 15 years. Assume that the buyerâs applicable tax rate is 42% (federal and state) and that interest rates are 0%. How should the buyerâs Board of Directors think about a step- up in the basis of the assets? How much more would the buyer pay to achieve a basis step up? â¨
Compare the after-tax consequences (if any difference) to the selling members of Target 1 under the following structures:
Sale of Target 1âs assets for cash followed by the liquidation of Target 1. â¨
Sale of Target 1âs membership interests for cash. â¨
Compare the after-tax consequences (if any difference) to the selling stockholders under the following structures:
Sale of Target 2âs assets for cash followed by the liquidation of Target 2. â¨
Sale of Target 2âs share for cash. â¨
Assume that the consideration for each transaction will be paid as follows:
70% stock of buyer (a C corporation). â¨
30% cash. â¨
Describe (in general terms) how a deal to acquire each of Target 1 and Target 2 might be structured in order to allow the selling members of Target 1 and stockholders of Target 2 to defer recognizing the gain on the receipt of the stock of buyer.