Chapter 11: Mergers & Acquisitions Tax Considerations

Flashcards covering the key concepts from Chapter 11 notes on M&A tax considerations (Q11-1 to Q11-11).

What are the top 3 motives for acquisitions?

1) Tax savings 2) Faster growth 3) Dump dead weight

What is the key tax factor in M&A?

"Cash vs. Stock" - cash is taxable now; stock is tax-deferred

What are the benefits and costs of a step-up?

Benefit: bigger future write-offs. Cost: immediate tax on gain

Why does the acquirer want the target's tax attributes?

To use the target's losses/credits to shield the acquirer's future profits

What are the 5 ways to buy a C-corp?

Taxable Stock; Stock + §338; Taxable Assets; Tax-Free Stock; Tax-Free Assets

What are the 4 divestiture techniques?

Subsidiary Stock sale; Subsidiary Asset sale; Spin-off; Equity Carve-out

What is the step-up definition & cash-flow effect?

New basis equals purchase price, leading to higher depreciation

How often does a step-up occur in a C-corp?

Rare (costs often exceed the benefits)

Step-up is common with which entities?

S-corps, partnerships, and subsidiaries

What are the 3 tax attributes of concern for the acquirer?

NOLs, tax credits, and asset basis

In a carryover basis scenario, what happens to the target's basis and cash flow?

Basis stays the same as the old basis; no extra cash-flow from larger depreciation