Category: Corporations/Accounting
Periods and Methods Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com This memorandum is a continuation (with a slightly different facts) of the issue set forth in Corporate Reorganization; Deduction of Target's Accrued Expenses (Part A); Sections: 461(h). The facts are the same as the prior discussion except that the taxpayer is a corporation acquired in a stock-for-stock merger. Assuming a valid reorganization, a stock-for-stock deal would have to be either one of the triangular A reorganizations or a B reorganization. The ultimate issue is whether the corporate existence of the target company continued after the transaction. I can see three alternatives. · The target corporation merged into either the acquiring company or a subsidiary of the acquiring company such that corporate existence of the target company ceased. · The acquiring company issued its stock to the shareholders of the target company, and the target company thereby became a subsidiary of the acquiring company. In this case, the corporate existence of the acquiring company continues. · A subsidiary of the acquiring company merged into the target company with the target company as the survivor. In this case the target's corporate existence continues. If the corporate existence of the target company continues, then the target company is entitled to write off the property taxes in the year of accrual as long as the target company pays the item on or before the filing deadline for its tax return (including extensions). In that case, it is my very strong view that the target company must literally pay the expenses itself. It doesn't matter whether the cash comes from post transaction operations, a capital injection or loan from the parent, or what. Target must write the check. If target did not survive the merger, then I stick by my original advice: the acquiring corporation must pay. In the case of a forward triangular merger, I think the acquiring subsidiary must pay, not the parent company whose stock was issued to the shareholders of the target company. |
