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What tax and nontax advantages and disadvantages accrue when an acquiring corporation purchases all of a target corporation's stock for cash and subsequently liquidates the target corporation?

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Select the advantages of purchasing all of the target corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation. (Select all that apply.)

A. The acquiring corporation assumes the tax attributes of the target corporation.

B. The target corporation pays a tax, however the shareholders' receive the distribution as a tax-free distribution.

C. The only tax cost incurred to accomplish the transaction is that the target corporation's shareholders must recognize gain/loss on the sale of their target corporation stock.

D. No tax cost is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

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Select the disadvantages of purchasing all of the target corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation. (Select all that apply.)

A. A Sec. 338 election can be used to step-up the assets' inside bases, however this generally involves tax on the gain from the deemed Sec. 338 sale.

B. The acquiring corporation does not obtain a stepped-up basis in the acquired assets.

C. Tax is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

D. The stock basis "loss" cannot be deducted for five years, and therefore does not provide a current benefit to the acquiring corporation.

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