Tax Planning Strategies for S Corporation Mergers and Acquisitions

Tax advisers should not overlook the potential tax pitfalls in S corporation mergers or acquisitions. Failure to comply with the requirements of an S corporation, an improper election, and other missteps can have significant adverse tax consequences. The panel also will explore F reorganizations involving S corporations and explain why they are so commonly used in advance of an acquisition.

When it comes to an asset versus a stock sale, purchasers generally prefer buying a business' assets, allowing for depreciation of newly acquired assets at fair market value and the write-off of the purchase price using bonus depreciation or Section 179 deductions. Sellers generally prefer stock sales because gains are treated as capital gain (which can be taxed at preferential tax rates) and the sale may qualify for installment sale tax treatment. If an election under 338(g) or 338(h)(10) is properly made, even sales that are legally treated as stock sales could be treated as asset sales for tax purposes.

For S corporations that were previously C corporations, sellers must consider the tax effect of built-in gains. Even though S corporations are used to avoid two layers of tax, there can still be two layers of tax without proper planning.

Listen as our panel of flow-through entity experts examines specific scenarios regarding purchases and sales of S corporations and provides explanations of the tax consequences of each.

I. Asset purchases and sales

II. Stock purchases and sales

III. F reorganizations

IV. Various transaction alternatives

V. Installment sales

VI. Shareholder distributions

The panel will cover these and other critical issues:

• Pre-sale F reorganizations
• Avoiding built-in gains tax on sales
• When an election under 338(h)(10) would result in significant tax savings
• The differences between 338(h)(10) and 3336(e) elections
• How shareholders are taxed on dispositions

Learning Objectives

After completing this course, you will be able to:

• Identify the various transaction alternatives
• Determine when the sale of an S corporation is eligible for installment sale treatment
• Decide whether purchasing assets or stock would be most beneficial to the purchaser
• Ascertain situations where making an election under 338(h)(10) or 336(e) would result in substantial tax savings

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of corporate structure, retained earnings calculations. Specific knowledge of Subchapter S rules and operations; familiarity with passive income rules and concept of built-in gain.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).