CPAs rarely, if ever, should expect to see a taxable acquisition
structured as a stock purchase.
A covered transaction is (1) a taxable acquisition
by the taxpayer of assets that constitute a trade or business; (2) a taxable acquisition
of an ownership interest in a business entity if immediately after the transaction, the acquirer and target are related; or (3) a reorganization under sections 368(a)(1)(A), (B), or (C) or certain reorganizations under section 368(a)(1)(D).
It would impose a 100% excise tax on the acquisition cost of any "taxable acquisition
" of an interest in an "applicable insurance contract." The provision is estimated to raise $264 million over a 10-year period.
Therefore, the court concluded that two separate transactions occurred--a taxable acquisition
of corporate stock by a stockholder and a tax-free reorganization.
[section] 1.263(a)-5 reserves on the treatment of capitalized costs incurred by a target corporation in a taxable acquisition
of the target's stock where no section 338 election is made.
1.263(a)-5(e)(3) defines a covered transaction as a taxable acquisition
of an ownership interest in a business entity (whether the taxpayer is the acquirer in the acquisition or the target of the acquisition) if, immediately after the acquisition, the acquirer and the target are related within the meaning of Sec.
"Covered transactions" are defined as (i) the taxpayer's taxable acquisition
of assets comprising a trade or business; (ii) the taxable acquisition
of an ownership interest in another entity if the acquirer and target are related immediately thereafter; or (iii) a reorganization described in section 368(a)(1)(A), (B), or (C), or a reorganization described in section 368(a)(1)(D) in which stock or securities of the corporation to which the assets are transferred are distributed under either section 354 or 355.
* A taxable acquisition
of an ownership interest in a business entity (whether the taxpayer is the acquirer or the target in the acquisition) if, immediately after the acquisition, the acquirer and the target are related within the meaning of Sec.
Example 11: A acquires TG in a taxable acquisition
wherein A purchases all of TG's assets for $8 million.
On the other hand, any sale of such stock to a related party can cause the underlying acquisition to fail COI and therefore become a taxable acquisition
However, a taxpayer must capitalize transaction costs that facilitate the acquisition or creation of an intangible asset, the taxable acquisition
of a trade or business, restructuring or reorganization of a business entity, and certain other covered transactions described in Regs.
6043A requires information reporting by an acquiring corporation in any taxable acquisition
, according to the forms and rules prescribed by Treasury.