Tax free acquisition

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Tax free acquisition

A merger or consolidation in which (1) the acquirer's tax basis on each asset whose ownership is transferred in the transaction is generally the same as the acquiree's, and (2) each seller who receives only stock does not have to pay any tax on the gain realized until the shares are sold.

Tax Free Acquisition

A merger where the value of the assets a stockholder receives at the end of the transaction is substantially the same as the value of assets before the transaction began. For tax purposes, stockholders are treated as having kept their old shares, and are therefore not subject to capital gains taxes.
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Although addressing the costs of the acquirer in acquiring a controlling interest in a trade or business in a taxable asset or stock acquisition, the current regulations do not discuss costs incurred by the acquiring entity in tax-free acquisitions or the costs incurred by the target.
IN TAX-FREE ACQUISITIONS THE SUCCESSOR ENTITY should carry on the predecessor's tax accounting for contingent liabilities as if nothing had occurred.
355(b); by contrast, tax-free acquisitions typically are not subject to this rule.
Surprisingly, little change has been made in the tax treatment of so-called tax-free acquisitions (also called corporate reorganizations).
To effect a tax-free acquisition, at least two corporations must be involved, one of which may be formed specifically for that purpose.
The current regulations generally address the treatment of the costs of the acquirer in acquiring a controlling interest in a trade or business in a taxable asset or stock acquisition, but do not discuss costs incurred by the acquiring entity in tax-free acquisitions or the costs incurred by the target.
Covered subjects range from taxable and tax-free acquisitions, dispositions, and reorganizations to intangibles development and ownership planning to transfer pricing to foreign losses, and structuring international joint ventures.