Business, 31.05.2021 21:10, jasminechambers642

Hurricane, Inc., is an S corporation. Orleans, Inc., wants to acquire Hurricane for cash. Hurricane's shareholders have a tax basis in their stock of $3,000, and Hurricane has assets with a net tax basis of $3,000 (cost = $4,500, accumulated depreciation = $1,500). Hurrican has no liablities. Assume the transaction can be structured one of two ways: Option 1: As a taxable stock acquistion without Section 338(h)(10) election
Option 2: As a taxable stock acquistion with a Section 338 (h)(10) election

Further assume that Orleans is willing to pay $5,000 to aquire Hurrican under either structure, and that all depreciation claimed to date must be captured to the extent of the purchase price. Assume that all recaptured depreciation is taxed at the highest ordinary income rate and that no additional taxes will apply in an asset sale due to Tax Code restrictions relating to S corporations.

Required:
a. How much cash after tax will Hurricane's shareholders have under Option 1?
b. How much cash after tax will Hurricane's shareholders have under Option 2?

Answers: 1

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Hurricane, Inc., is an S corporation. Orleans, Inc., wants to acquire Hurricane for cash. Hurricane'...