Smithco is considering acquiring the assets of Jonesco. It had considered buying

Question

Smithco is considering acquiring the assets of Jonesco. It had considered buying Jonesco stock, but Smithco is concerned about unknown or contingent liabilities. Smithco is a New Jersey Company, which because it does mail-order sales has no nexus in other states. Jonesco is a California mail-order company, also with no nexus in other states. Jonesco has substantially appreciated assets. Would you recommend a taxable or tax-free acquisition, from a state income tax perspective? Why? What other tax issues should be considered?

Assume the same facts above, except that a taxable versus tax-free stock acquisition is being considered.

Explanation / Answer

SmithCo, New Jersey-based; considering buying Jonesco Stock (California based firm)

Taxable

Tax-free

Other tax issues

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