Đạo luật Cải cách thuế năm 1986 loại bỏ các lợi ích về thuế liên quan đến việc bán một công ty rẽ C. Trước khi thông qua hành động, sự thâu tóm của một công ty rẽ C có thể đẩy mạnh mua tài sản từ giá trị sổ sách của họ. Kể từ khi mất giá các tài sản này cao hơn giá trị đã tăng lên đến một chi phí cao hơn noncash, | Taxes and Firm Value 139 CAPITAL GAINS TAXATION AND THE VALUE OF FREESTANDING S AND C CORPORATIONS The Tax Reform Act of 1986 removed the tax benefits associated with the sale of a freestanding C corporation. Prior to the passage of the act the acquirer of a freestanding C corporation could step up purchased assets from their book values. Since depreciating these higher-valued assets gave rise to a higher noncash expense which was then tax deductible the acquiring firm could reduce its tax liability and raise its after-tax cash flow. Since the passage of the Tax Reform Act the tax cost of obtaining the step-up in the acquisition of a freestanding C corporation is almost always greater than the tax benefit from the step-up. In contrast the benefits from the step-up are still available when subsidiaries of a C corporation and pass-through entities such as S corporations are sold. The example that follows demonstrates that an acquirer will pay more for an S s tax benefits due to stepping up the value of acquired assets than it will for an equivalent C The structure of a taxable acquisition of a C or S can be of three forms. 1. Taxable stock acquisition without a 338 h 10 election. 2. Taxable stock acquisition with a 338 h 10 election. 3. Taxable asset acquisition. Section 338 of the Internal Revenue Code allows a purchaser to elect to treat a stock purchase of a freestanding C corporation as a taxable asset purchase. The acquirer can make the 338 election if it acquires at least 80 percent of the stock of the target firm within a 12-month period and does so in a taxable manner which means that a significant amount of the transaction must be paid for with cash. The 338 election is made by the acquirer and does not require the consent of the target s shareholders and the election must be made within months of the acquisition. In a taxable stock acquisition followed by a Section 338 election the target corporation is treated for tax purposes as if it .
