The Tax Aspects of Acquiring a Business, Second Edition, 2nd Edition

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.¹ 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 weigh 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 the acquiring corporation is highly liquid (e.g., ...