Organizational Tax Planning
Questions2
1) 338(a)(1) shall be treated as having sold all its assets at the close of the acquisition date at fair market value in a single transaction, and 338(a)(2) shall be treated as a new corporation which purchased all the assets referred to in paragraph one as of the beginning of the day after the acquisition date. IRC Section 338 allows a deemed sale election generating immediate taxation to the target corporation and a stepped-up or stepped-down basis to the price paid by the acquiring corporation for the target corporation stock plus liabilities on the deemed sale.
- Examine the benefits of IRC Section 338 liquidation election for a target corporation and create a scenario that would demonstrate a favorable Section 338 liquidation election for a target corporation.
2) When a group of corporations comes together to form an affiliated group for tax purposes, individual corporate members in the group may choose to file their own income tax return or file a group tax return; with an agreement of all the group members, they can elect to file a consolidated return. Imagine that a client is pursuing the acquisition of Corporation A that has a substantial net operating loss. Corporation B is a member of a controlled group and is currently included in a consolidated tax return that also has a net operating loss.
- Analyze the potential advantages and disadvantages of Corporation B’s acquisition of Corporation A and Corporation A’s subsequent inclusion in Corporation B’s consolidated tax return.
- Suggest the critical tax issues the client should consider in determining the deductibility of the net operating losses.
- Evaluate the impact of the Tax Cuts and Jobs Act (TCJA) on the net operating losses.
