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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