The Portable MBA in Finance and Accounting, 3rd Edition

Taxes and Business Decisions 323

after they were incurred). Since a corporation with significant losses would
normally be valued at a relatively low amount, the yearly available loss is likely
to be relatively trivial.
Acquisition of the corporation’s assets and liabilities for cash or through a
cash merger eliminates any use by the acquirer of the target’s tax-loss carryfor-
ward, leaving it available for use by the target’s shell. This may be quite useful
to the target because, as discussed earlier, if it has not elected subchapter S
status for the past 10 years (or for the full term of its existence, if shorter), it is
likely to have incurred a significant gain upon the sale of its assets. This gain
would be taxable at the corporate level before the remaining portion of the
purchase price could be distributed to the target’s shareholders (where it will
be taxed again).

EXHIBIT 11.3 Acquisition strategies.

T

Owned by

T’s stockholders

Owned by

T’s stockholders

Owned by

T’s stockholders

Owned by

T’s stockholders

Owned by

T’s stockholders

Owned by

T’s stockholders

Before After

A

Target Acquirer

T

T’s assets

T

T

A

A

T

A A

T’s assets

Merger

Acquisition

of stock

Purchase

of assets