ExpertMedium1 markMultiple Choice
CPA · Question 67 · Area 4: Entity Tax Planning
A taxpayer is negotiating the sale of their business. They can structure it as an Asset Sale or a Stock Sale. The buyer prefers an Asset Sale. Why?
A taxpayer is negotiating the sale of their business. They can structure it as an Asset Sale or a Stock Sale. The buyer prefers an Asset Sale. Why?
Answer options:
A.
To obtain a step-up in basis of the assets for depreciation purposes.
B.
To avoid transfer taxes.
C.
To inherit the seller's tax attributes (NOLs).
D.
To minimize the seller's tax.
How to approach this question
1. Analyze Buyer's Perspective: Wants to deduct the purchase price.<br/>2. Asset Sale: Buyer records assets at purchase price (FMV). Higher depreciation/amortization.<br/>3. Stock Sale: Buyer's basis is in the stock (cannot depreciate). Assets inside retain old basis.<br/>4. Conclusion: Buyer prefers Asset Sale for the step-up.
Full Answer
A.To obtain a step-up in basis of the assets for depreciation purposes.✓ Correct
A
In an asset sale, the buyer gets a step-up in basis to FMV, allowing for higher future depreciation and amortization deductions. In a stock sale, the basis of the assets inside the corporation remains unchanged.
Common mistakes
Thinking the buyer prefers stock sale (sellers usually prefer stock sale).
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