TAX 670_Week 2_ Document_ Post 2

The affects that transactions, mergers, and acquisitions have within companies. More specifically if

corporation A was to Buy corporation B in the scenarios that was given (Knight, 2021). Under tax law

code Sec. 269 the IRS can disallow the benefits of an acquisition made to evade or avoid tax (IRS,

2023). If you do pass the test for Sec. 269 then the IRS could use Sec. 382 to limit benefits which

allows them to restricted net operating loss carry forwards and the sale would not do you any good

(IRS, 2023).

Corporation A’s CEO needs to seek the help of the company’s tax advisers so they could let him know

that this move would be unethical and more importantly illegal because of the 26 U.S. Code Sec.

1.269 Acquisition to evade or avoid tax is designed to prevent an entity from buying these

ownership change for Sec. 382 purposes takes place if the percentage of stock of the corporation

owned by one or more 5% shareholders increases by more than 50 percentage points over the lowest

percentage of stock owned by these shareholders during a three-year testing period” (Journal of

Accountancy, 2021). So to sum it up once 50% of the entity changes hands then 26 U.S. Sec 1.382

begins giving one no chance of claiming any credit.

The tax treatment surrounding mergers and acquisitions is necessary because these professionals must

evaluate the after-tax cost of doing business in one location vs. another. Tax professionals must also

analyze several tax incentives related to these deals. When a merger or acquisition deal is signed, tax

professionals must then work thoroughly with the two entities into one. When this is executed

correctly, the new entity will have value and compliance processes per the current laws. [CITATION

Acquisitions are crucial strategic tools businesses use to promote growth during economic uncertainty.

The execution of the acquisition can be challenging when tax compliance is considered. [CITATION

Ken18 \l 1033)] Although there are several reasons why the execution can be challenging, there are a

few main culprits. The most critical tax concerns are due diligence, integration, accounting/financial

reporting, and post-acquisition compliance. If not appropriately addressed, significant impairment

could result in the merger or acquisition not being successful.

Tax attributes such as net operating losses and built-in losses can provide a tax shield against future

taxable income. When dealing with mergers and acquisitions, the tax team must work to identify areas

of value and costs because the target company could have acquired companies in the past that added

Regulations 1.368-1 provides the purpose and scope of exception of reorganization exchanges". [

CITATION GriTA \l 1033] "IRC 381 provided the rules for carryovers in certain corporate

acquisitions and was amended by the Tax Cuts and Jobs Act – breaking down with the acquisition of

assets of a corporation by another corporation is a §332 (liquidation) or a §361 (relating to non-

recognition of gain or loss to the corporation. A great number of other code sections apply to mergers

including § 1.381(b)(1), § 1.381(c) (3)-1, §382, §383, and §384". [ CITATION GriTA \l 1033]

Congress enacted IRC§382, which describes the limitations on net operating loss carry forwards and

certain built-in losses following ownership changes. [ CITATION GriTA \l 1033] In my current role,

several of our mutual funds merged into one mutual fund. Tax analysis that analyses § 381-384 and

382/383 limitations are completed to determine whether the target funds would enter the survivor fund

with any built-in gains or losses. This is a strong example illustrating how impactful the tax code is

when discussing mergers and acquisitions.

References

Griffin Jr., W. F. (?). TAX ASPECTS OF CORPORATE MERGERS AND ACQUISITIONS. Davis

%20through%20the%20acquisition,mergers%20due%20to%20their%20scale.

Naughtin, CPA, R., Douggar Esq., CPA, S., Sayuk, CPA, D., & Fricke, CPA, M. (2012, August 1). Tax

compliance for acquisitions: Prepare before purchasing. Journal of Accountancy. Retrieved from

https://www.journalofaccountancy.com/issues/2012/aug/20125272.html

IRS. (2023). Retrieved from IRS.gov: https://www.irs.gov/businesses/cost-segregation-atg-chapter-6-

4-relevant-court-cases

Journal of Accountancy. (2021, 02 01). Acquiring the tax benefits of a corporation. Retrieved from

Journal of Accountancy.com: https://www.journalofaccountancy.com/issues/2021/feb/tax-benefits-of-

a-corporation.html

Knight, R. A. (2021, 02 01). Acquiring the tax benefits of a corporation. Retrieved from Journal of