When valuation is important for tax purposes, breakdown by legal entity is key since each has its own tax identity and related tax consequences.
In the case of a U.S. acquisition of a foreign target, it was oftentimes beneficial to make a Section 338(g) election.
Canada, like the U.S., imposes a thorough set of documentation requirements, and imposes penalties for failure to comply.
A key tax consideration is whether the acquirer will be entitled to a stepped up tax basis in the assets and thus entitled to future tax deductions.
Determining the degree of insolvency is a key step since this will dictate the amount of COD income which may be excluded.
The valuation of a development-stage company’s common stock is best estimated using the methods in the Practice Aid.
For companies who have not filed for bankruptcy, the insolvency exception is critical.
Many companies have already adopted FIN 48 and have turned their attention to the annual disclosure requirements.
The impact of the investor model is that it essentially guarantees a return to the intangibles developer for its efforts.
In general, the impact of a Sec. 338 election is that a stock acquisition is treated as an asset acquisition.