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Our attorneys have structured hundreds of business transactions, ranging from the sale of a few business assets to complex, multi-level corporate acquisitions. Whether the transaction is acquisitive, divisive, or some combination of both, our attorneys are highly skilled at structuring a plan that will provide the greatest benefit to our client, in terms of both liability and tax savings. In addition to transaction planning, each of our attorneys has received extensive training in contract negotiations. As a result, our attorneys have a proven track record of effectively implementing the transaction we have designed. We have recently seen a significant number of transactions involving Asset Purchase Agreements and Corporate Reorganizations. Therefore, we are providing some general information regarding these types of transactions as follows:
Asset purchase agreements can be an extremely tax effective way in which to buy or sell substantially all of the assets of a corporation or business entity. Section 1060 of the Internal Revenue Code provides buyers and sellers with a great deal of flexibility in structuring transactions in consideration of effective tax planning. However, Buyers and Sellers should take extreme care to avoid the many tax "land mines" lurking within a sale of assets. Sections 1245, 1250, and 197 of the Internal Revenue Code establish a host of taxable recapture provisions with which Sellers and Buyers must contend. Likewise, Buyers should take precautions in avoiding allocations that result in lengthy depreciation or amortization periods, which can have serious adverse tax effects.
Section 368 of the Internal Revenue Code sets forth seven basic types of corporate reorganizations. These reorganizations are referred to by the subparagraph in which they are defined (e.g., Code Sec. 368(a)(1)(A) defines a Type A reorganization). In order to receive the most favorable tax treatment, corporate transaction(s) must have been completed pursuant to a qualified plan of reorganization. No taxable gain or loss will be recognized if stock or securities in a corporation that is a party to the reorganization are exchanged solely for stock or securities of the same corporation or of another corporation that is a party to the reorganization. This method of structuring results in tax free reorganizations, but only if there is strict compliance with the requirements of the Internal Revenue Code.