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Adviser's Guide to the Tax Consequences of the Purchase and Sale of a Business - 2nd Edition

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Description

Knowing the tax consequences of buying or selling a business before the sale is crucial. This book, based on the popular CPE self-study course Tax Consequences of the Purchase and Sale of a Business, shows you how to correctly advise clients who want to buy or sell the assets or stock of a corporate business, the assets or interest of a partnership, or the assets or business of a sole proprietorship. You'll also find information on installment buying and selling and NOLs.

This guide also provides details on tax changes in this area including amortization of goodwill and other intangibles, the election for small business stock and the capitalization of acquisition costs, and much, much more.

About the Author

William H. Olson, Ph.D., CPA, received his Ph.D. in Accounting, with a specialization in Taxation, from the University of  North Texas.  He is the author of numerous publications on tax, accounting and financial matters, and has taught as an adjunct professor at several universities.  Dr. Olson’s professional experiences include senior positions in both public accounting and industry.  He is currently a Tax Principal with UHY Advisors TX, LLC, a subsidiary entity of UHY Advisors, Inc., located in Houston, Texas.

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Table of Contents

  • About the Author
  • Overview 
  • Chapter 1: Introduction to the Purchase and Sale of a Corporate Business  
    • Introduction
      • Tax Structuring Decisions
      • Categories of Acquisitions
    • Assets vs. Stock Purchase
      • Assets Purchase
      • Stock Sale
      • Tax Considerations
      • Nontax Considerations
    • Taxable vs. Tax-Free
      • Tax Considerations
      • Nontax Considerations
    • Summary 
  • Chapter 2: Taxable Asset Transactions
    • Introduction
    • Asset Transactions – Buyer Concerns
    • Asset Transactions – Seller Concerns
    • Code Sections Primarily Affecting Seller’s Concerns
      • Section 331 – Shareholder Tax Consequences in Corporate Liquidations
      • Section 336 – Corporate Tax Consequences of Liquidation Distributions
      • Section 1245 – Character of Gain
      • Section 1250 – Recapture of Excess Depreciation on Real Property
      • Section 453 – Installment Sales
    • Section 1060 – Allocation of Purchase Price
      • Allocation of Purchase Price to Individual Assets Prior to the Tax Reform Act of 1986
      • Section 1060's Rules
      • Allocation of Sales/Purchase Price
      • Effect of a Written Agreement Between the Parties
      • Subsequent Adjustment
      • Reporting Requirements  
      • Acquisition Related Costs
    • Summary 2-15
    • Case Study 2-1 – Dodger Manufacturing Corporation
    • Appendix – Form 8594
  • Chapter 3: Purchases Involving Intangible Assets
    • Introduction
    • Background
    • Seperable and Valuable Intangibles – Pre-RRA of 1993
    • Revenue Reconciliation Act of 1993 – Amortization of Intangible Assets
      • Workforce
      • Information Base
      • Customer-Based Intangible 
      • Supplier-Based Intangible
      • Excluded Assets
      • Special Rules Concerning Section 197 Intangibles
      • Tax Planning
    • Summary
    • Case Study 3-1 – Dodger Manufacturing (cont.) - Intangible Assets
  • Chapter 4: Taxable Stock Transactions 
    • Introduction
    • Taxable Stock Sale vs. Taxable Asset Sale
    • Section 338 – Treating Stock Purchases as Asset Purchases
      • Requirements for Section 338 Treatment
      • Old Target's Assets Sale to New Target
      • Primary Drawbacks of the Section 338 Election
    • The Section 338(H)(10) Alternative
      • New Selling Corporation's Responsibilities on a Target's Stock Sale
      • Tax Consequences to Acquirer and Seller
      • When to Use the Election
      • Allocation and Reporting Requirements  
    • Section 338 Regulations
    • Summary
    • Case Study 4-1 – Dodger Manufacturing (cont.)
  • Chapter 5: Carryover of Tax Attributes
    • Introduction
    • Section 382
      • Owner Shifts
      • Equity Structure Shifts
      • Testing Periods
      • Losses Limited by Section 382
      • Five Percent Shareholders
      • Impact if Section 382 Applies 
      • Other Rules 
      • Recognition of Built-in Gains and Losses
      • Section 383
      • Separate Return Limitation Years
    • Section 269
      • Determining Whether Section 269 Applies
      • Section 269(B)
    • Section 384
      • Stock Acquisitions
      • Asset Acquisitions
      • Other Considerations
    • Summary
    • Case Study 5-1 – Mad Max Electronics Co.
  • Chapter 6: Taxable Acquisitions Involving Sole Proprietorships, S Corporations, Partnerships, and LLCs
    • Introduction
    • Acquisitions from a Sole Proprietorship
    • Acquisition of a Business from an S Corporation
    • Purchase of S Corporation’s Assets
      • Passive Income Limitation
      • Gain on Asset Sale
    • A Purchaser Acquires the S Corporation’s Stock
      • Potential Termination of the S Election
      • Tax Impact
      • Asset vs. Stock Sale
    • Acquisitions Involving Partnerships
    • Purchase of Assets from a Partnership
      • Consequences to the Selling Partnership
      • Consequences to the Purchaser
    • Purchase of a Partnership Interest
      • Consequences to the Seller of a Partnership Interest
      • Consequences to the Purchaser of a Partnership Interest
      • Consequences to the Continuing Partners and the Partnership
    • Limited Liability Companies
    • Summary
  • Chapter 7: Federal Income Tax Reporting Requirements
    • Introduction
    • Asset Purchases
    • Stock Purchases
      • Form 8023
      • Form 8883
    • IRC Section 6043a
    • Sale or Exchange of Certain Partnership Interests
    • Section 382 and Loss Corporation Information Disclosure
    • Appendix – Forms 8308, 8023, and 8883
  • Chapter 8: Other Acquisition-Related Issues
    • Introduction
    • Treatment of Expenses Incurred in an Acquisition
      • Expensing vs. Capitalizing
      • Takeovers: The Target's Tax Treatment 
      • Position of the Courts 
      • Position of the IRS
      • Tax Planning Comment
    • Compensation Issues
      • Golden Parachute Payments
      • Greenmail Payments
    • Summary
  • Chapter 9: Ethics Focus: Taxation
    • Ethics Overview
    • Recent Developments
    • Spotlight on Independence in Tax Services
    • Key Ethical Dilemmas and Judgment Calls
    • Addressing Ethical Dilemmas
    • Available Resources
  • Appendix A:
    • Due Diligence Checklist
    • Tax Glossary

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Excerpts

Overview

INTRODUCTION

This book is designed to introduce participants to the federal income tax considerations relevant to the taxable purchase and sale of a business.  This includes the special rules that apply to acquisitions involving S corporations, limited liability companies (LLCs), and partnerships.  It also addresses the reporting of these transactions and the tax treatment of acquisition expenses.  The focus is on taxable transactions. Acquisitions accomplished through tax-free reorganizations are not discussed in this book.

ORGANIZATION

Chapter 1 – In initially analyzing the sale or purchase of a business, many tax and nontax issues must be considered.  This chapter reviews these items, which are important in determining whether a transfer of assets or stock is preferable.

Chapter 2 – This chapter analyzes various tax considerations in a taxable asset acquisition from a “C” or regular corporation.  Some of the concepts discussed include the following:  benefits of an installment sale; allocation of lump asset sales price; and liquidating the corporate business as part of the sale.

Chapter 3 – This chapter specifically discusses the types of intangible assets that might be acquired in a business acquisition and the tax treatment and basis determination of these intangibles.  The rules under §197, which permit amortization of certain intangibles (including goodwill) over 15 years are discussed.

Chapter 4 – This chapter analyzes taxable stock transactions. Some topics discussed include §338 and §338(h)(10) elections.

Chapter 5 – This chapter discusses the carryover of tax attributes (for example, net operating losses [NOLs] and tax credits) in a stock acquisition.

Chapter 6 – This chapter discusses the tax consequences when an S corporation, partnership, sole proprietorship, or LLC is involved in an acquisition transaction.

Chapter 7 – This chapter summarizes the reporting requirements for the various types of acquisitions discussed in this book.

Chapter 8 – This chapter discusses the treatment of acquisition-related expenses, such as investment banking fees, attorneys' fees, accountants' fees, and commitment fees.  In addition, it discusses certain types of compensation payments, such as golden parachute payments and greenmail payments, and the imposition by Congress of excise taxes in order to discourage them.

Chapter 9 – This chapter highlights some of the more common ethical dilemmas that practitioners might encounter in the course of their tax practice.

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Paperback 2007
Product# 091025
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