Chapter 5

Tax-Deferred Acquisitions of C Corporations

IRC provides for tax-deferred combinations of corporations through exchanges of stock or assets in the target corporation for stock in the acquiring corporation.* In some situations, the corporations and shareholders have a choice between taxable and tax-deferred transactions. Except where the situation is one of a merger of equals, the dominant party must heavily way the basis implications: If the target has ­appreciated assets, no step-up in basis is permitted in a tax deferred acquisition of stocks or assets. From the perspective of the target corporation’s ­shareholders, cash may be preferable—even though tax may be due—unless the stock of acquiring corporation is highly liquid (e.g., ...

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