Explain:
Why does IRS treat stock purchase and tangible and intangible assets purchase differently in acquisition?
The difference is caused by the nature of transaction involved.
The following summarises some the main reasons for the same:
When assets are acquired the tax base of assets of the purchaser
increases. Thus he will able to claim depreciation or amortisation
of the same. This in turn reduces taxes. Similarly in case of
seller, he will have to pay capital gain taxes in case the value at
which the asset are sold for a value higher than the actual tax
base.
Moreover in this case, the corporation has to pay taxes on capital
gain and distribution to shareholders.
On the other hand in case the acquisition is of the stock of the
enterprise, the purchaser will not be able to claim any enhanced
tax base. Thus no deprecation and amortisation benefits. Moreover,
corporation will have to pay no taxes, instead the shareholders
will to be pay the capital gain taxes.
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