Liquidating subsidiary ordinary or capital
If the deal is structured as an asset purchase, Alpha enjoys a benefit of 2 from tax savings realized over 15 years. If the deal is structured as an asset purchase, Alpha enjoys a benefit of 2 from tax savings realized over 15 years.The taxable gain equals the after-tax proceeds distributed less the shareholders' aggregate basis in the stock sold, or × (1 − 35%) − = .5.
Following a three-year attempt at reorganization under Chapter 11 bankruptcy, the firm announced it would close all 216 stores and liquidate its inventories and real estate.
So, to convince Sierra to agree to an asset purchase, Alpha might offer to compensate Sierra for the of incremental taxes by increasing the purchase price by ÷ (1-40%) = .
Tax basis is the carrying cost of an asset on a company's tax balance sheet, and is analogous to book value on a company's accounting balance sheet.