Tax Advice Benefit

Compare the long-term tax benefits and advantages of each type of reorganization, and recommend the type of reorganization that will be most beneficial to the client Reorganization takes into account any company restructuring that may be tax-free under the United States law section 386. It encompasses the notion of acquiring new entities in a manner that all financial transactions are non-taxable. There are certain general requirements that have to be met in order to qualify.

To begin with, it must be a plan of reorganization, must have a sound and fitting business purpose, and must satisfy continuity of interest as well as continuity of business enterprise examinations. There are different forms of reorganization that include type A, B, C, and D. reorganizations (Macabacus, 2017). To begin with, type A reorganization takes into account mergers and consolidations.

The advantages of this reorganization type is that it is flexible, funds and other property can be transferred devoid of disqualifying the transaction, on condition that continuity of interest is met. Lastly, consideration does not need to be voting stock (Macabacus, 2017). Type B reorganization comes in the form of taking advantage of the voting stock of the corporation going through the reorganization for the acquisition of the stock of the acquired company.

The advantage of this reorganization is that it may be beneficial when the stakeholders of the target company are ready to accept acquirer stock as consideration. In addition, the acquiring company may benefit if it does not want to give out a significant amount of money to finance the acquisition and also endeavor to protect itself from the liabilities of the target company.

Third, type C reorganization takes into account restructuring where the corporation being acquired becomes liquidated and the stakeholders of the acquiring corporation purchase the stock of the target corporation. The advantage of this particular reorganization type is that the acquirer is permitted to be selective when choosing the liabilities it assumes. Lastly, there is type D reorganization where acquisition together with division are utilized as the key constituents for reorganization (Macabacus, 2017). Taking all matters into consideration, the most suitable reorganization type for the company is type A.

This is because the approach permits the tax amounts to be avoided by deferring such amounts to the capital gains in the balance sheet of the company and therefore benefiting ABC Corporation. Tax avoidance is permitted by section 368 of the law by the Internal Revenue Services (IRS) and facilitates the company to offload the tax in a legal manner.

In addition, it is imperative to point out that ABC Corporation to considerably benefit from type B reorganization for the reason that this approach is a cash free kind of enhancement, and which is well-matched for tax avoidance. In particular, by selecting this particular approach, the acquirer would have the capacity to get a hold of the shares of the target company in the event that the stakeholders make the decisions that they want the stock (Block, 2004).

Suggest the type of reorganization the client should use for the ABC Corporation based on your research. Justify the response The company in question, ABC Corporation, has significant net operating losses and is cause to undergo being acquired under the corporate reorganization type of non-taxable business transactions.

Taking into consideration that the firm aspires to get the most out of the losses with regard to the taxes that are to be paid, it implies that ABC Corporation is seeking for corporate reorganization approaches and it is deemed that the most suitable one will be the type A reorganization.

This is largely for the reason that by selecting this type of reorganization, there will be a merger of the company's assets together with the liabilities of the target entity therefore giving rise to the consolidation of assets and liabilities. In addition, this reorganization type will be more fitting and suitable to the company because its assets will be written down in the balance sheet of the acquiring company's financial statements and the losses incurred will be utilized to offset the tax amounts to be paid (Block, 2004).

Propose a taxable acquisition structure for the client's planned acquisitions over a nontaxable reorganization. Assess the value of a taxable transaction over a nontaxable reorganization for the client The recommended taxable acquisition structure for the client company that is deemed fitting is the step-up approach of acquisition. Despite the fact that this structure is taxed, the acquirer will be able to obtain assets of market value from the company being acquired.

In particular, the market value in question will be utilized for tax credit as its base and will additionally be utilized as depreciation. The advantage of consolidation between the acquirer and the target company will make it possible to include both the assets and the liabilities within the financial statements of the acquirer. Therefore, if the company is seeking a taxable acquisition structure that would diminish the tax liability imposed, then it is recommended to espouse the step-up approach (Epstein and Jermakowicz, 2008).

Examine the value and limitations of including the ABC Corporation if acquired as a wholly owned subsidiary in the consolidated return, and provide a recommendation to your client. Support the recommendation with applicable research In delineation, a wholly owned subsidiary is a distinct company formed by a parent company however the parent company owns and is in possession of 100% of the stock of the subsidiary. There is value and limitations of ABC Corporation being a wholly owned subsidiary in the consolidated return.

The benefits of this consist of offsetting the losses of one of the parties included in the business consolidation against the taxable income of the entity as a whole. This implies that the loss incurred by the subsidiary can actually be offset against the taxable income of the parent entity. The value of this is that it will decrease the tax amount to be paid by ABC Corporation.

Moreover, consolidation is of value as it maintains the dividends paid out by the parent company from being taxed bearing in mind that consolidated firms undertake the intercompany dividend system (Huntington, 2017). However, there are downsides to this consolidation. One of them encompasses irreversibility. Organizational transformations linked with mergers and acquisitions are efficaciously irreversible.

Another limitation is that taking into account that subsidiaries are legally separate and distinct from their parent company, the creditors and shareholders of subsidiary in overall do not have any claim on the parent company and nor do the shareholders of the subsidiary share in the generated profits of the parent company. Thus, taking all these aspects into consideration, the recommendation for the client is to assess and bear in mind the decision of becoming a wholly owned subsidiary.

Taking into account the limitations and advantages aforementioned, this is beneficial because the losses incurred by the parent company as well as the subsidiary will be amalgamated into a tax return that is consolidated. Moreover, any of the financial losses ABC Corporation will incur, at the end of the financial year, will be offset by the net incomes generated by the parent company, which is a significant benefit (Hanif, 2005). Create a scenario that will allow the client to reduce any disadvantages from filing.