Periods and Methods
Title: Reorganization, Deduction of Target's Accrued Expenses
IRC Sections: 461(h)
Date Produced: 12/97
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:
The facts are the same as the prior discussion
except that the taxpayer is a corporation acquired in a stock-for-stock
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
· 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.