Tax Advice Benefit Essay

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Compare the long-term tax benefits and advantages of each type of reorganization, and recommend the type of reorganization that will be most beneficial to the client



Reorganization takes into account any company restructuring that may be tax-free under the United States law section 386. It encompasses the notion of acquiring new entities in a manner that all financial transactions are non-taxable. There are certain general requirements that have to be met in order to qualify. To begin with, it must be a plan of reorganization, must have a sound and fitting business purpose, and must satisfy continuity of interest as well as continuity of business enterprise examinations. There are different forms of reorganization that include type A, B, C, and D. reorganizations (Macabacus, 2017). To begin with, type A reorganization takes into account mergers and consolidations. The advantages of this reorganization type is that it is flexible, funds and other property can be transferred devoid of disqualifying the transaction, on condition that continuity of interest is met. Lastly, consideration does not need to be voting stock (Macabacus, 2017).



Type B reorganization comes in the form of taking advantage of the voting stock of the corporation going through the reorganization for the acquisition of the stock of the acquired company. The advantage of this reorganization is that it may be beneficial when the stakeholders of the target company are ready to accept acquirer stock as consideration. In addition, the acquiring company may benefit if it does not want to give out a significant amount of money to finance the acquisition and also endeavor to protect itself from the liabilities of the target company. Third, type C reorganization takes into account restructuring where the corporation being acquired becomes liquidated and the stakeholders of the acquiring corporation purchase the stock of the target corporation. The advantage of this particular reorganization type is that the acquirer is permitted to be selective when choosing the liabilities it assumes. Lastly, there is type D reorganization where acquisition together with division are utilized as the key constituents for reorganization (Macabacus, 2017).



Taking all matters into consideration, the most suitable reorganization type for the company is type A. This is because the approach permits the tax amounts to be avoided by deferring such amounts to the capital gains in the balance sheet of the company and therefore benefiting ABC Corporation.

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Tax avoidance is permitted by section 368 of the law by the Internal Revenue Services (IRS) and facilitates the company to offload the tax in a legal manner. In addition, it is imperative to point out that ABC Corporation to considerably benefit from type B reorganization for the reason that this approach is a cash free kind of enhancement, and which is well-matched for tax avoidance. In particular, by selecting this particular approach, the acquirer would have the capacity to get a hold of the shares of the target company in the event that the stakeholders make the decisions that they want the stock (Block, 2004).



Suggest the type of reorganization the client should use for the ABC Corporation based on your research. Justify the response



The company in question, ABC Corporation, has significant net operating losses and is cause to undergo being acquired under the corporate reorganization type of non-taxable business transactions. Taking into consideration that the firm aspires to get the most out of the losses with regard to the taxes that are to be paid, it implies that ABC Corporation is seeking for corporate reorganization approaches and it is deemed that the most suitable one will be the type A reorganization. This is largely for the reason that by selecting this type of reorganization, there will be a merger of the company's assets together with the liabilities of the target entity therefore giving rise to the consolidation of assets and liabilities. In addition, this reorganization type will be more fitting and suitable to the company because its assets will be written down in the balance sheet of the acquiring company's financial statements and the losses incurred will be utilized to offset the tax amounts to be paid (Block, 2004).



Propose a taxable acquisition structure for the client's….....

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References

Block, C. D. (2004). Corporate taxation: examples and explanations. Aspen Publishers Online.

Epstein, B. J., & Jermakowicz, E. K. (2008). Wiley IFRS 2008: Interpretation and Application of International Accounting and Financial Reporting Standards 2008. John Wiley & Sons.

Hanif, A. M. M. (2005). Corporate Accounting. Tata McGraw-Hill Education.

Huntington, M. (2017). Tax Benefits for Wholly Owned Subsidiaries. Chron. Retrieved 20 May 2017 from: http://smallbusiness.chron.com/tax-benefits-wholly-owned-subsidiaries-78864.html

Macabacus. (2017). Tax-Free Acquisitions. Retrieved 20 May 2017 from: http://macabacus.com/taxes/tax-free-acquisitions

Salem, I. (1965). Advantages and Disadvantages of Filing Consolidated Returns: A Fresh Look. Tax Executive, 18, 166.

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