Agenda - Council - 08/24/1982 - Laserfiche WebLink

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!i :' : ~i~ ItFVlEW - 82-31 - 7 - July 30, 1982 i ! !1 ! MERGER AND ACQUISITION PROVISIONS OF SENATE TAX BILL Some businessmen believe that the merger and acquisition provisions of the Senate-passed tax bill go well beyond the stated purpose of correcting a few abuses in this area. The proposed changes would likely have a negative impact on many corporate acquisitions occurring in the normal course of business. The most significant change would require that the purchaser of the stock of a corporation make an election if it wishes to establish a new tax basis for the assets of the purchased corporation (the same as if the assets were purchased directly). Permitting an election to establish a new tax basis for assets, without requiring liquidation of the purchased corporation, is a positive step. However, there are some adverse effects, in that: · The election would apply to all assets of the parent company and subsidiaries of a purchased affiliated group. · The new rule would apply to transactions negotiated under present law that cannot be concluded prior to the proposed effective date of the new law. The provision that requires the election to be applied to assets of all affiliated corporations acquired along with a purchased corporation is unduly harsh. This is especially true where the seller is an affiliated group that for many years has conducted its business in separat~ corporations. If an as- set purchase includes both operating assets of the selling company and the sellers' investment in stock of subsidiary companies, the election would apply automatically to assets of the subsidiaries. This means the acquiring company would not have the option of keeping the historical tax basis of the subsidiaries and, thus, could not avoid the recapture of prior tax benefits, such as deprecia- tion and investment tax credits. Significant elements of the rules pertaining to the election are to be determined under regulations to be prescribed by the Secretary of the Treasury. This would create many new uncertainties regarding the tax consequences of corporate acquisitions pending the issuance and interpreta- tion of the Treasury Department regulations. Personal Business Thoughts A Q-TIP TRUST LETS YOU DECIDE THE ULTIMATE DISPOSITION OF YOUR ESTATE A basic estate planning technique is proper utilization of the marital deduction. Under prior law, the marital deduction was limited to the greater of one-half of the adjusted gross estate or $250,000. The Economic Recovery Tax Act of 1981 (ERTA) removed this limitation effective January 1, 1982, thereby allowing a deduction for the full value of all qualifying property passing to one's spouse. Since the marital deduction is now unlimited, a bequest of all property to your surviving spouse will completely defer Federal estate taxes until your spouse's subsequent death. However, by leaving all your property to your spouse outright, to utilize the unlimited marital deduction, you relin- quish the ultimate disposition of the property to your spouse. For a variety of reasons, you may not want to do this. A Qualified Terminable Interest Property Trust (Q-TIP), also enacted by ERTA, is an estate planning tool enabling you to provide for your spouse, obtain an estate tax marital deduction, and still control the ultimate disposition of your estate. In the past, you were not entitled to an estate tax marital