Liquidating subsidiary ordinary or capital

To the contrary, if you purchase the of

To the contrary, if you purchase the of $1,000,000.Under Section 1060, you allocate the purchase price among the acquired hard assets, and any amount you paid in excess of the value of the hard assets is allocated to intangible assets like goodwill.Group Relief allows members of a group of companies to transfer certain Corporation Tax (CT) losses to other members of the group.

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To the contrary, if you purchase the of $1,000,000.

Under Section 1060, you allocate the purchase price among the acquired hard assets, and any amount you paid in excess of the value of the hard assets is allocated to intangible assets like goodwill.

Group Relief allows members of a group of companies to transfer certain Corporation Tax (CT) losses to other members of the group.

For example, Company A can surrender a loss to Company B of the same group.

When this is the case, the buyer must preserve the separate legal existence of the target so that the target's key contracts remain intact.

This forces the buyer to acquire the target's , which is rather unfortunate, because as laid out above, the buyer loses the tax benefits that come from an asset purchase.

,000,000.Under Section 1060, you allocate the purchase price among the acquired hard assets, and any amount you paid in excess of the value of the hard assets is allocated to intangible assets like goodwill.Group Relief allows members of a group of companies to transfer certain Corporation Tax (CT) losses to other members of the group.

Let's pretend further that the company you'd like to buy is worth

Let's pretend further that the company you'd like to buy is worth $1 million, but if you got a chance to look at the target's balance sheet, you'd see that the tax basis of their assets is only $300,000.

It can be either a C or S corporation, but that's it. But not any old corporation will do; rather, a Section 338(h)(10) election is limited to the stock purchase of three specific types of corporate targets, all of which have something in common. A corporation that is a subsidiary in a consolidated group. As we'll see shortly, when a Section 338(h)(10) election is made, there are two steps to the transaction: First, the target corporation is treated as having sold all of its assets in a taxable transaction.

Under Section 1504, this requires that the subsidiary's stock be owned at least 80% by other members of the group. A corporation that is a subsidiary in a group that is to file a consolidated return, but chooses not to. Then, however, the target corporation is deemed to liquidate and go out of existence, a matter we'll discuss in great detail. When a corporate subsidiary liquidates into a parent that owns 80% of the subsidiary's stock, the liquidation is governed by Sections 332 and 337, which provide that the subsidiary recognizes no gain or loss on the distribution of all of its assets to its parent corporation. Sections 332 and 337 also apply when a corporate subsidiary liquidates into it's corporate parent -- provided the parent owned 80% of the subsidiary's stock -- even if no consolidated return is filed. Under Section 1367(a)(1), when an S corporation target recognizes gain on the deemed asset sale, that gain increases the stock basis of its shareholders.

As you'll see below, only certain types of transaction -- with certain types of buyers and targets -- can give rise to a Section 338(h)(10) election.

And while the consequences of an election can get a little tricky because a tax fiction is necessary to convert the stock sale for legal purposes into an asset sale for tax purposes, it has been my experience that most of the confusion surrounding a Section 338(h)(10) election is centered around what type of buyer and seller are eligible to make the election. People often get this area confused, but it's quite simple: the buyer in a Section 338(h)(10) transaction MUST be a corporation.

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Let's pretend further that the company you'd like to buy is worth $1 million, but if you got a chance to look at the target's balance sheet, you'd see that the tax basis of their assets is only $300,000.It can be either a C or S corporation, but that's it. But not any old corporation will do; rather, a Section 338(h)(10) election is limited to the stock purchase of three specific types of corporate targets, all of which have something in common. A corporation that is a subsidiary in a consolidated group. As we'll see shortly, when a Section 338(h)(10) election is made, there are two steps to the transaction: First, the target corporation is treated as having sold all of its assets in a taxable transaction.Under Section 1504, this requires that the subsidiary's stock be owned at least 80% by other members of the group. A corporation that is a subsidiary in a group that is to file a consolidated return, but chooses not to. Then, however, the target corporation is deemed to liquidate and go out of existence, a matter we'll discuss in great detail. When a corporate subsidiary liquidates into a parent that owns 80% of the subsidiary's stock, the liquidation is governed by Sections 332 and 337, which provide that the subsidiary recognizes no gain or loss on the distribution of all of its assets to its parent corporation. Sections 332 and 337 also apply when a corporate subsidiary liquidates into it's corporate parent -- provided the parent owned 80% of the subsidiary's stock -- even if no consolidated return is filed. Under Section 1367(a)(1), when an S corporation target recognizes gain on the deemed asset sale, that gain increases the stock basis of its shareholders.As you'll see below, only certain types of transaction -- with certain types of buyers and targets -- can give rise to a Section 338(h)(10) election.And while the consequences of an election can get a little tricky because a tax fiction is necessary to convert the stock sale for legal purposes into an asset sale for tax purposes, it has been my experience that most of the confusion surrounding a Section 338(h)(10) election is centered around what type of buyer and seller are eligible to make the election. People often get this area confused, but it's quite simple: the buyer in a Section 338(h)(10) transaction MUST be a corporation.

million, but if you got a chance to look at the target's balance sheet, you'd see that the tax basis of their assets is only 0,000.

It can be either a C or S corporation, but that's it. But not any old corporation will do; rather, a Section 338(h)(10) election is limited to the stock purchase of three specific types of corporate targets, all of which have something in common. A corporation that is a subsidiary in a consolidated group. As we'll see shortly, when a Section 338(h)(10) election is made, there are two steps to the transaction: First, the target corporation is treated as having sold all of its assets in a taxable transaction.

Under Section 1504, this requires that the subsidiary's stock be owned at least 80% by other members of the group. A corporation that is a subsidiary in a group that is to file a consolidated return, but chooses not to. Then, however, the target corporation is deemed to liquidate and go out of existence, a matter we'll discuss in great detail. When a corporate subsidiary liquidates into a parent that owns 80% of the subsidiary's stock, the liquidation is governed by Sections 332 and 337, which provide that the subsidiary recognizes no gain or loss on the distribution of all of its assets to its parent corporation. Sections 332 and 337 also apply when a corporate subsidiary liquidates into it's corporate parent -- provided the parent owned 80% of the subsidiary's stock -- even if no consolidated return is filed. Under Section 1367(a)(1), when an S corporation target recognizes gain on the deemed asset sale, that gain increases the stock basis of its shareholders.

As you'll see below, only certain types of transaction -- with certain types of buyers and targets -- can give rise to a Section 338(h)(10) election.

And while the consequences of an election can get a little tricky because a tax fiction is necessary to convert the stock sale for legal purposes into an asset sale for tax purposes, it has been my experience that most of the confusion surrounding a Section 338(h)(10) election is centered around what type of buyer and seller are eligible to make the election. People often get this area confused, but it's quite simple: the buyer in a Section 338(h)(10) transaction MUST be a corporation.

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You've decided to pull the trigger and pay the $1 million price tag, but you're left pondering to get the deal done.

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